GOVERNANCE IN MINERAL AND COAL MINING in INDONESIA

GOVERNANCE IN MINERAL AND
COAL MINING
PanelistIN
on Launching
of Regional Framework on
INDONESIA
Extractive Industries Government
Dr. R. Sukhyar
(Director General of Mineral and Coal)
Ritz Carlton Hotel, November 28th, 2014

DIRECTORATE GENERAL MINERAL AND COAL
MINISTRY OF ENERGY AND MINERAL RESOURCES


OUTLINE
I.

BACKGROUND

II. GOVERNANCE CONCEPT IN MINERAL RESOURCES

DEVELOPMENT
III. CURRENT CONDITION
IV. INDONESIAN MINING POLICY
V. INVESTMENT OPPORTUNITY
VI. CLOSING REMARKS


I.

BACKGROUND


CONSTITUTION OF THE REPUBLIC OF
INDONESIA IN1945

ARTICLE 33 PARAGRAPH (3):
Land and water and the natural riches
contained therein controlled by the state
and used for the people's welfare.


GOVERNMENT FUNCTION
In the context with the execution of mineral right of the State, the Government has
functions as follows
•
•
•
•
•

Policy setting
Regulating
Licensing
Supervising
Overseeing and monitoring


Shifting of Paradigm
Development of Natural Resources

Old Paradigm

New Paradigm

Exploitative,
Resources for
Revenue

Resources for
Sustainable
Development: pro
growth, pro job, pro
poor , pro
environtment

Demand Driven
Resource Management
6


I. BACKGROUND

(2)

MINERAL ISSUES, EVOLUTION PRECESS AND CONCERN ON
SUSTAINABLE DEVELOPMENT

Sumber : Suslick & Machado, 2001; Shields & Solar, 2006)

“Mining activity must be in line with sustainable

development principle”


II. GOVERNANCE CONCEPT AND STAKEHOLDERS IN
MINING


II. CONCEPT OF GOVERNANCE

(1)

CONCEPT OF GOVERNANCE
Go ve rnanc e in mine ral re s o urc e s de ve lo pme nt
is defined as a s ys te m o pe rating in ac c o rdanc e
to the e ffe c tive and e ffic ie nt po lic y, law and
re g ulatio n whic h inte r-c o nne c ts s take ho lde rs
with diffe re nt func tio ns fo r the be ne fit o f
pe o ple ’s pro s pe rity at larg e .
Every stakeholder must act and perform its function
in accordance to the principles of trans pare nc y,
re s po ns ibility, ac c o untability and fairne s s .


MINING STAKEHOLDER IN INDONESIA
MForest

Regent

Police

Governor

MTransport

MWorker

Nuclear
Agency

Ministry of
Communication

MEMR AS PRINCIPAL
OF MINING LICENSE

MJustice
and Law

MPublic
Worker

MFinance
MTrade
Oil and Gas
Company
MDefence
MSpetial
Planning

Investment

Board

Continuous
Improvement if MEMR
as Principle of Mining
License:
1. Streamlining
approvals
2. Strong coordination
among agencies,
government up hold
the MEMR as the
principal
3. Simplification of
procedures in
Bureaucracy.
4. Government effort for


II. CONCEPT OF GOVERNANCE

(2)

Resource development is designed to e mpo we ring local
community and providing a fair re turn to c o mmunity based
on principle:
 Equitable
 Efficient
 Sustainable
 Predictable

 Tranparent


III. CURRENT CONDITIONS


3.1 INDONESIAN OUTLOOK
De mand fo r e ne rg y, mate rials , wate r and o the r ke y
re s o urc e s de mand is like ly to inc re as e rapidly

Indo ne s ia
to day…

Source: McKinsey Global Institute, 2012

…and in
2030


3.2 MINERAL RESOURCES AND RESERVE

Ferro and Associates
Molibdenum,
Precious Metal
Base Metal

: Fe, Nickel, Cobalt, Chromit , Mangan,
Titanium
: Gold, Silver, Platinum
: Zinc, Cupper, Tin, Lead, Mercury

RESOURCES RESERVES
(MILLION
(MILLION
TON)
TON)
NO Type
META
ORE
ORE METAL
L
Primary
1
7,670
3,225
Gold
0.007
0.003
2 Bauxite 1,265 529.3
583 238
3 Nickel 3,565 52.2 1,168
22
17,52
4 Copper
106.2 3,126
28
6
5 Iron
712 401.8
66

40
Iron
6
2,117 425.4
174
25
Sand
Mangan
7
15
6.3
4
3
ese
8 Zinc
625
7.3
6
0.8
9 Tin
449
2.1 801
0.4
13,75
10 Silver
0.8 3,253
0.0
5
Source : Geology Agency, MEMR, 2013

Light and Rare metal : Bauxite, Monasit


3.3 COAL RESOURCES AND RESERVE

Very High (> 7.100 kal/gr)
High
(6.100 - 7.100 kal/gr)
Medium (5.100 - 6.100 kal/gr)
Low

(< 5.100 kal/gr)

Source : Geology Agency, MEMR, 2013

RESOURCES : 120.5 Billion Ton
RESERVES : 31.4 Billion Ton


3.4 INDONESIAN COAL AND PRODUCTION RANK
NO

COMMODITY

RESERVE

PRODUCTION

LOCATION

1

Coal

31,4 Billion
Ton

421 Million
Ton

Sumatera,
Kalimantan

6th

2

Tin

801 Million
Ton

88
Thousand
Ton

Sumatera

2nd

3

Nickel

1,168
Million Ton

60 Million
Ton

Sulawesi,
Maluku,Sumatera,
Papua

2nd

4

Copper
(Metal)

28 Million
Ton

5
6

WORLD
RANK
(PRODUCTI

ON)

450
Papua, Maluku, Nusa
5th
Thousand
Tenggara
woTon
rld rank mine ral and e ne rg y

Indo ne s ia has a
re
s o urc e s ,583
that
c an56be
us e dKalimantan
to c re ate be ne fit5thin
Bauxite
Million
Million
Ton
the fo rm
o f inveTon
s tme nt o ppo rtunity, jo b,
Gold (Metal)
0.003
59 Metric
Kalimantan,
7th
e

duc
atio
n,
we
lfare
,
e
tc
Million Ton
Ton
Sumatera, Maluku,


3.5 COAL AND MINERAL PRODUCTION (2009-2014)
No .

Co mmo dity

Unit

1.

Co ppe r (Me tal)

Thousand
Ton

999

2.

Go ld

Ton

3.

Tin

4.

2009

2010

2013

Plan
Fo r
2014

2011

2012

878

543

448

450

640

166

311,8

104

104

76

75

59

87

26

75

Thousand
Ton

60

48

42

95

88

88

10,8

70

Nic ke l Ore

Million Ton

6

7

32

41

60

3,5

3,8

4,2

5.

Bauxite

Million Ton

5

16

39

30

56

1

2,8

4,3

6.

Iro n Ore

Million Ton

5

4

12

10

19

7

1,1

6,4

7.

Co al
Pro duc tio n

Million Ton

254

275

353

407

421

397

346

425

a. Coal Export

Million Ton

198

210

287

340

349

302

263,5 301,75

95

82,5 123,25

Note:
b. Coal
For DMOup to Semester
Million Ton
65
66
67
72
*)
: - Realization
1st, 2014 56
- Realization for Nickel Ore and Bauxite on January 2014
- Mineral production Plan for 2015 already include metals as refining and processing results
**) : Realization of Coal Production until the end of October 2014

2014*)

Plan
Fo r
2015


3.6 TYPE OF STATE REVENUE
TAX/NON TAX OBLIGATION TARIFF
TYPE

IUP

CoW

CCoW

Landrent/Deadrent

1, 2, or 4 USD/ha based on phase
operation

2 – 4 USD/Ha (prevailing)

2 - 4 USD/Ha (prevailing)

Royalty

Open pit : 3,5, or 7% based on calorie
Underground :2, 4, 6% based on calorie
Metals vary from 1-4%

3- 5 % (prevailing)

13,5 % (naildown)

Corporate Tax

25%

25-45% (naildown)

25-45% (naildown)

Note :
• Prevailing based on Government Regulation No. 9/2012
• Naildown based on Contract
• CoW : Contract of Work (KK)
• CCoW : Coal Contract of Work (PKP2B)


3.7 CONTRIBUTION OF MINING SUB SECTOR TO NATIONAL
DEVELOPMENT

MINING
S TILL AS
ECONOMIC
PRIMEMOVE
R

S TATE
REVENUE

LOCAL
EMPLOYMENT

MINI
NG
SUB
SECT
OR

INVES TMENT

COMMUNITY
DEVELOPMENT


V.

INDONESIAN MINING POLICY


5.1 GOVERNMENT AUTHORITIES OF MINERAL AND COAL
MINING
REPUBLIC OF INDONESIA
Preamble and
MINERAL
RIGHT

POWER FROM PEOPLE
GOVERNMENT

PROVINCE
- To provide on supporting development and and
utilization of mineral resources
- To manage mineral resources across regency, 4 to 12
nautical miles, and that is not implemented by the
County / City.
- To conduct training and research on mining
REGENCY/CITY

ECONOMIC
RIGHT

• Regulating, Licensing, Supervising, controlling of Mining
Activity
• To manage mineral resources in regency/city
ECONOMY ACTORS

Related Law and
regulations:
Law No 32/2004;
Law 4/2009, etc.

REGIONAL REGULATION

DECENTRALIZATION

- To determine policies, guidelines, standards,

MINING RIGHT

procedures
and criteria
- To supervise implementation of autonomy policy
- To manage Mineral Resources
- To develop and arrange internasional
cooperation/aggrement
DECONCENTRATION

Article 33 of the

Indonesia’s 1945
Constitution


5.2 LEGAL STANDING
1. Article 33 Indonesia Constitution 1945:

Verse (1) The economy shall be organized as a common endeavour based upon the principle of the family
system.
Verse (2) Branches of production which are important for the State and which affect the life of most people
shall be controlled by the State.\
Ayat (3) Land and water and the natural riches contained therein shall be controlled by the State and shall
be made use of for the people welfare.
2. Article 169 Law No 4 Year 2009:
a.

CoW and CCoW thhat already exist prior to the effectiveness of this Law shall remain valid until the
contracts/agreements expire.

b.

The terms that are stated by articles of CoW adn CCoW as intended by point (a) shall be adjusted at the
latest 1 (one) year of the promulgation of this Law, with the exception of state revenue.

c.

Exception of state revenues as intended by point (b) shall be an effort to increase state revenue.

Elucidation of Article 169 (b) : All articles that are contained in CoW and CCoW must be adjusted to the
Law.

5.4 MINING ENTERPRISE REGULATION
SUBSTANCE
1. Government
Position
2. Business Actor
Position

TERM
Mining permission given through tender by
local government after area designated by
Minister

SUBSTANCE
3. Enterprise (cont)):
• Area

For production stage:
•IUP Metallic Mineral max 25.000 ha,
(Foreign Enterprise, min. Auction
5.000 ha)
•IUP Non-Metallic Mineral max. 5.000
ha
•IUP Coal max 15.000 ha, (Foreign
Enterprise, min. Auction 5.000 ha)
•IUP Rocks max 1.000 ha

• Processing & Refining

Required

Business entities is under the control of the
government, omitting mining contract system.

3. Enterprise:
• Form

Mining License (IUP, IPR & IUPK)
(Contract of Work and CCoW- Coall contract
to be Licence after contract ends).

• Tenure:
operation
period

20 years (can be extended 2 x 10 years)

• Divestment
obligation

After 5 years of production, Minimum required
to divest 51% (integrated smelter 40% and
undergroung mining 30%)

• Area

For pre-production stage :

4. Resource Management

•IUP Metallic Mineral max 100.000 ha, (Foreign
Enterprise, min. Auction 5.000 ha) cat: PP
28/2013 minimal lelang PMA 5.000 ha
•IUP Non-Metallic Mineral Max 25.000 ha
•IUP Coal max 50.000 ha (Foreign Enterprise,
min. Auction 5.000 ha),
•IUP Rocks max 5.000 ha

TERM

•
•
•

Must manage properly
Increased value added in the
country
Prioritization of Domestic Needs

5. Sanction to the licensor

Sanction available

6. Regional authority

Reduced, the Minister set working
area

7. Environment Protection

8. CSR, Right of
community


GOVERNANCE IN MINING (LAW NO 4/20009)
1. GOOD GOVERNMENT GOVERNANCE
- Clarity in power and authority division between the national government and regional government either
province and regency/mayor
- Open system of cadastre and tenament
- Transparant resource management and open mining and geology data
- Fair and transparent licensing system
- Put sanction to the authorities who do not comply the the law and regulation
- Supervise, oversee and monitoring performance of local government in mining
- Supervise, oversee and minitor mining companies
- Provide guidance to people’s mining
2. GOOD CORPORATE GOVERNANCE
- Comply to law and regulation, and good mining practices
- CSR and community development
- Apply the use of local content
- Regular reporting
- Protect environment, environment assessment, land reclamation and post mining
- Provide public, employee and installation safety and health
- Conservation
- Value added


5.5 GOVERNMENT REFORM (NAWA CITA) OF JOKOWI-JK

SINKRONIZATION
OF CENTRAL AND

LOCAL
GOVERNMENT

25

MINING LICENSE
SIMPLIFICATION

VALUE ADDED/
DOWN STREAM
PROCESSING

RENEGOTIATING OF
CONTRACT (CoW,
CCoW)

OPTIMALIZATION
OF STATE
REVENUE