New Divestment Mechanism for Mining

Ministry of Energy and Mineral Resources issues regulation outlining how 51 percent divestment should be done

By Gilang Ardana
Tuesday, February 14, 2017

Indonesia’s Ministry of Energy and Mineral Resources has released regulation Number 09 Year 2017 regarding procedures for shared divestment and mechanisms for the price of divested shares for mineral and coal mining business activities. This is to further implement Government Regulation No. 1 of 2017 on the implementation of mineral and coal mining business activities.

According to the Jan. 18, 2017 regulation, foreign companies holding Mining Business Licenses and Special Mining Business Licenses – hereinafter called “the holders” are required to divest their shares to 49 percent in phases, five years after the commencement of production. 

The divestment is subject to yearly minimum percentage ownerships as follows: 20 percent in the sixth year, 30 percent in the seventh year, 37 percent in the eight year, 44 percent in the ninth year and 51 percent in the tenth year. However, this divestment requirement will not apply to the holders of Special Production Operation Licenses for downstream processing and/or refining activities.

Mechanism

The holders should divest their shares to Indonesian entities no later than 90 calendar days after reaching the fifth year of production. The regulation defines an Indonesian entity through a series of layers of institutions that need to be considered by the holders in offering divested shares. The entities are as follows:

  1. The central government through the Minister of Energy and Mineral Resources;
  2. Provincial government and local district/city government;
  3. State-owned enterprises (SOEs) and regional government-owned enterprises; and
  4. Domestic private enterprises.

The first divestment process will be the offer to the central government. In this case, the energy minister will conduct the evaluation and negotiation of the price of the divested shares by the latest 90 days after receipt of the offer. The minister can appoint an independent assessor to perform the evaluation and should give a final written answer to the offer at the latest 30 days after the evaluation period ends.

If no agreement is reached, the offer should go to the next layer below the central government, but the process should be the same price based on the evaluation done by the central government.

The second layer will be offer to the provincial government and it should receive the offer no later than seven days after the issuance of the central government’s final decision. The provincial government is given 30 days to give a final answer to the offer. The same time scheme also applies to SOEs and domestic private enterprises.

In case there is no single entity interested from central government to domestic private enterprises, the offer should be directed to the Indonesian Stock Exchange.

Price determination and payment procedure

The regulation mandates that the divested shares must be paid for and delivered within a maximum period of 12 months following the date of the letter of intent of the relevant Indonesian entity. The payment and delivery of the divested shares must be set out in a deed of sale and purchase signed by both parties.

In determining the price of the divested shares, the holders should base their decision on a fair market value and without taking into account the reserves of minerals or coal at the time of the offer. The price should be the highest price offered to the central and provincial governments and will become the base price for the offer of the divested shares through auction to state-owned enterprises and domestic private enterprises.

This regulation came into effect on January 20, 2017.

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