COAL CONTRACT OF WORK, Legal Status,

Rights &
CONTRACT OF WORK & Obligations,

MINING BUSINESS LICENSES Privileges

ADRI KURNIA IBNU

M I N E P RAC T: M I N I N G B U S I N E S S M A S T E RC LA S S
S H E R AT O N B A L I , 2 4 - 2 6 A P R I L 2 0 1 9
 CURICULUM VITTAE

Invited as speakers in the latest national, events:

Adri Kurnia Ibnu, S.H., M.H., L.LM., ACIARB  Petromindo: One-Day Conference on the Government
General Manager Legal PT Kaltim Prima Coal Regulation Number 24/2012 on the Implementation of Coal
and Mineral Mining Business activities, JW Marriott Hotel
(adri.Kurnia@kpc.co.id, adri.kurnia@adrikurnia.com - 08115808572)
Jakarta, 29 March 2012

 Mining from A to Z, Business Practitioners and Lawyers'
Education Background: Experience, Hilton Hotel Bandung 8 -10 February 2012

•SMU Taruna Nusantara, Magelang (1996 – 1999)  Strategic Asia: Generic Rules or Commodity based
•Law School of Padjadjaran University (S.H., 2005) Regulations in Promoting Higher Domestic Value Added in
•Law School of University of Indonesia (M.H., 2014) Natural Resources Use: Lesson from the Coal Industry, Le
•Murdoch University, Perth, Western Australia (non degree – International Meridien Hotel, Jakarta 2 February 2012

Arbitration, 2011)
•Leiden University Law School, the Netherlands (L.LM., 2017) International event:
 International Financial Law Review: Indonesia Forum -
Working Experience: Negotiating the Legal Landscape, Fullerton Hotel
Singapore, 23 November 2010
•Adnan Buyung Nasution & Partners
•Bahar & Partners
Field of expertise:
•Gani Djemat & Partners
•Mining
•Makes & Partners
•Energy
•Makarim & Taira
•Investments
•PT Kaltim Prima Coal (2008 – now)
•Project Financing
•EPC Contracts
Associations & Organisations:
•Mining Tax Disputes
•Chartered Institute of Arbitrators, London, UK (Associate)
•Deputy Chairman of APBI (Head of Legal and Regulatiory Division), 2018-2021
•Head of Legal Committee at the Indonesian Mining Association (IMA, 2018-2020)
•Vice Chairman of Strategic Policy at Perhapi (2018 – 2021)
LEGAL STATUS & CONSTRUCTION
COAL CONTRACT OF WORK
& CONTRACT OF WORK
 LEGAL STATUS
CCOW & COW / IUP
CCOW & COW
 Are agreements endorsed by the Government of Indonesia through a process
requiring consultation with the House of Representatives as required by Article 10(3)
of Law 11/1967. The process is mirroring the legislation making process
 Subject to Indonesian Civil Code Book 3 – Contract Law
 Parties to the Contract have equal position to each other
 An Agreement can not be amended, unless it is upon the parties to the agreement’s
consent

IUP – KP/Mining Authorization

 IUP/KP is granted by the Government authority through beschikking or one sided
determination given by the law to a public authority
 Not a mutual agreement between the Government official and investor, but solely the
decided by the Government official in accordance with his authority in accordance
with the prevailing laws
 CCOW/COW APPLICATION PROCESS

PRESIDENT
8B

7B
CAPITAL INVESTMENT
COORDINATING BOARD
10 9 HOUSE
OF REPRESENTATIVES
MINISTER OF ENERGY 8A
& MINERAL RESOURCES
7A

11
6

2A 3
DIRECTOR GENERAL
APPLICANT
MINERAL, COAL & GEOTHERMAL
1A 5
NEGOTIATOR:
1 1B 2  CENTRAL GOVERNMENT
 MINISTER OF FINANCE
 DIRECTOR GENERAL OF TAXES
 PROVINCIAL GOVERNMENT
BANK DIRECTOR – MINERAL & COAL  LOCAL GOVERNMENT
ENTERPRISE DEVELOPMENT  OTHER STAKEHOLDERS
 CONSTRUCTION OF CCOW/COW
UNDER INDONESIAN CIVIL CODE

 Clause 1338 of Indonesian Civil Code states all duly executed contract shall be the law stipulating relationship
between the parties

 A duly executed CCOW/COW shall be regarded as a law specifically stipulating relationship between the
Government of Indonesia and each party thereto in term of mining activities for relevant commodities as
agreed in each contract

 The law made between Government of Indonesia and each CCOW/COW holder shall bind the parties

 In case a general law made by the Government is in conflicting with the specific law made by the Government
each CCOW/COW holder, to the extent relationship between the Government and each CCOW/COW holder
the specific provisions of CCOW/COW shall prevail (Lex Specialis Principle?)

 Under CCOW/COW Indonesian Government subject to provision of Contract Law under Indonesian Civil Code
having consequences it shall use provisions of Contract law to enforce its right under the contract
 NAIL DOWN – GRANDFATHER CLAUSE –
LEX SPECIALIS

 Certain conditions in the CCOW and/or COW are nailed down or

grandfathered

 The items stipulated is final, or in case a new rule exists the provisions of
CCOW/COW regarding the same shall continue to apply

 If there differences occur between CCOW/COW and the prevailing laws, the
provisions of CCOW/COW shall prevail
 CCOW, COW AND LAW 4/2009
H O W I S T H E L E G A L S TAT U S O F C C O W / C O W A F T E R T H E E N AC T M E N T O F L AW 4 / 2 0 0 9 ?
Provisions of CCOW & COW
 Contract shall not be amended, annulled, or
modified in any respect except by mutual consent
in writing of the parties
 At the end of fifth year of Operating Period and
thereafter at 5 year intervals the parties shall
consult each other in case any revision required to
the contract; Consultation will be in good faith and
failure by the parties to agree on any revision shall
not constitute a dispute
 Contractor shall process or to produce a marketable
products
 Contractor shall prepare a feasibility study with
respect to possible smelter in Indonesia
 Contractor acknowledge Government’s policy to
encourage domestic processing of all its natural
resources into final product where feasible
 At the end of Exploration Period Contractor the
Contractor shall not be required to relinquish more
than 75% of its initial area
Provisions of Law 4/2009
 Article 169 (b) of Law 4/2009: All existing
CCOW/COW shall be adjusted in conformity to Law
4/2009, except for those relating to state revenue
 Article 169(c): Provision of CCOW/COW relating to
state revenue shall not be adjusted in conformity to
Law 4/2009, unless conducted in order to increase
state revenue
 Article 170: COW holders already in production
phase shall conduct domestic processing and
refining not later than 5 years as of the enactment
of Law 4/2009
• Article 171: CCOW and COW holders in exploration,
or feasibility study, construction or production to
submit long term plan over all
GENERAL COMPARISON
CCOW/COW, KP & IUP
 COMPARISON CCOW/COW & IUP
Matters CCOW/COW IUP (Metallic Minerals & Coal)

Form Agreement License/permit

Basis Parties’ consent Judgment by the authorized government Official

Amendment On parties’ consent By the authorized government official based on the

prevailing laws

Mining activity phases All phases of mining activities given and guaranteed in Permit holders must apply separate license for
the contract each phase of mining activities

Royalties or production sharing For minerals depend on each CCOW For mineral vary (ex gold 3.75%)
For coal Government share 13.5% FOB basis For Coal depends on the Calorific Value, but not
higher than 7% FOB price
Taxes The rate is vary from 30% to 45% Subject to prevailing tax laws, currently 25%

Other financial obligations Nailed down as written in the contract Subject to prevailing laws

Term 30 years as of operating period Maximum 20 years as of Production IUP issuance

Initial Area 2nd and 3rd CCOW up to 100,000 hectares Metallic minerals up to 100,000 hectares
COW up to 250 hectares (some earlier COW larger) Coal up to 50,000 hectares
Assets ownership Government or CCOW/COW holder Permit holder

Dispute settlement forum International/Domestic Arbitrations Court of Administrative

 THE AWARD OF MINING RIGHT

CCOW/COW Mining Authorization (KP) IUP

• CCOW/COW is granted based on • KP is granted based on application • IUP is granted to the winner in the
application from investor made by applicant auction for relevant mining area (for
• Application submitted on behalf of • The applying company shall be coal & metallic minerals)
investor whether foreign or domestic established from the beginning • The company shall be established
investors before applying KP (in case applicant before joining the auction and shall
• Company to be the party to the is a company) be engaged in mining business
contract established after principle • The company shall specifically having • Two types of licenses, IUP Exploration
approval is given line of business to conduct mining and IUP Production
• The CCOW company must specifically activities • IUP Exploration consists of General
having line of business to conduct • Company shall apply license for each Survey, Exploration, Feasibility Study
mining activities as provided under stage General Survey, Exploration, activities
the contract Exploitation (transportation and sales • IUP Production consists of
• Contractor has the sole right to activities included) Construction,
conduct mining activities for • Commodities divided into 3 Exploitation/Production,
coal/minerals in the contract area categories: Strategic, Vital, and non- Transportation and Sales activities
• CCOW/COW is a comprehensive strategic/vital (due to their functions) • IUP holder for exploration is
rights of mining activities from • A company may own more than one guaranteed to be given IUP
General Survey, Exploration, KP Production
Exploitation, Transportation and • Commodities divided into 5
Sales. categories: radioactive minerals,
• Commodities divided into 3 metallic minerals, non-metallic
categories: Strategic, Vital, and non- minerals, stones, and coal (due to
strategic/vital (due to their functions) their intrinsic elements)
• One CCOW/COW for one company • One IUP for one company, except for
public companies

CCOW/COW
 For early generation CCOW/COW, the
area is granted as necessary required
according to geophysical data provided
by investor, but lastly it is stipulated
maximum 250,000 hectares to minerals
and 100,000 hectares to coal
 At the latest of exploration period,
Contractor shall only retain not more
than 25% of initial area given under each
CCOW/COW (mandatory relinquishment)
and thereafter it is right of the Contractor
to voluntarily relinquish its area which
shall affective 30 days as of notification
date
 Contractor shall recognize the existing
KPs already issued by Government
before the execution of CCOW/COW
 Right of first refusal in case the
Contractor discovers other minerals
 Right of first refusal to enlarge its
contract area if coal/mineral deposits
extending beyond CCOW/COW area as
long as it doesn’t infringe other exclusive
mining right given by the Minister
MINING AREA
Mining Authorization (KP)
 A KP mining area for General Survey
≤5,000 hectares, and a company cannot
have more than 25,000 hectares for
General Survey all over Indonesian mining
territory (a company can hold more than 1
KP)
 A KP mining area for Exploration ≤2,000
hectares, and a company cannot have
more than 10,000 hectares for Exploration
all over Indonesian mining territory (a
company can hold more than 1 KP)
 A KP mining area for
Exploitation/Production ≤1,000 hectares,
and a company cannot have more than
5,000 hectares for Exploitation all over
Indonesian mining territory (a company
may hold more than 1 KP)
 Right of first refusal upon discovery of
deposits other than permitted in the KP
license
IUP
 Mining Business License Area (WIUP) for
coal and metallic mineral is granted
through auction
 IUP Exploration area for coal within 5,000
– 50,000 hectares, for IUP Production
≤15,000 hectares
 IUP Exploration for metallic mineral within
5,000 – 100,000 hectares, for IUP
Production ≤25,000 hectares
 IUP Exploration for non metallic mineral
within 500 – 25,000 hectares for IUP
Production ≤5,000 hectares
 IUP Exploration for stones within 5 – 5,000
hectares, for IUP Production ≤1,000
hectares
 First right of refusal without auction for
discovery of other commodities
 Before starting mining activities, IUP
holder to compensate existing right over
land through lease or sale arrangement or
any other arrangement as agreed by the
parties

...CCOW/COW
 CCOW/COW holders shall
compensate all rights over the land
within the mining activities area (Art
26 Law 11/1967)
 Compensation in the form of
acquiring the right over the land or
compensation only for the period the
land/building can not be used by the
owner (Art 25(1) Law 11/1967
 Rights over land on which a mining
authorization has been granted
cannot be issued to any other party
unless agreed by the Minister of
Mines and Energy (Art 27(5) Law
11/1967)
 Anyone owning right over a plot of
land in which a mining authorization
is granted shall allow mining
activities to be conducted by fair
compensation (Art 26 Law 11/1967
…MINING AREA
…Mining Authorization (KP) …IUP
 KP holder shall compensate all right
over the land by acquiring the right or
only for the period such right over land
cannot be used by the owner
 Rights over land on which a mining
authorization has been granted cannot
be issued to any other party unless
agreed by the Minister of Mines and
Energy (Art 27(5) Law 11/1967)
 Anyone owning right over a plot of land
in which a mining authorization is
granted shall allow mining activities to
be conducted by fair compensation (Art
26 Law 11/1967
 MODUS OPERANDI

CCOW/COW Mining Authorization (KP) IUP

 Contractor incorporated and  Incorporated Indonesian  Incorporated Indonesian
domiciled in Indonesia entity or individual entity
(except for the 1 COW)
st  May use contractor (mining  May use contractor (mining
 Contractor may use service companies) in service companies) in its
subcontractor (mining conducting mining activities mining activities
service companies) in its  No restriction in using  Coal and mineral getting
mining activities as affiliates activities are not allowed to
necessary required  No arm’s length basis be conducted by mining
 Contractor may use its requirement service companies
affiliates in its mining  Affiliate restriction, unless
activities on arm’s length approved by the Minister
basis transaction  Appointment of mining
 Appointment subcontractor service companies in its
doesn’t release Contractor mining activities shall not
from its obligation under the release IUP holder from its
contract liability under the mining
regulations
 WORK PROGRAM, EXPENDITURES AND
REPORTS
CCOW/COW
 To be submitted before the each
calendar year for Government
approval
 In case Government doesn’t
approve the Work Plan and
Budget, the previous approved
Work Plan and Budget shall be
used as the basis
 Work Plan and Budget can be
amended in case of
extraordinary circumstances
 Minimum spending
commitment
 Shall furnish: (a) Quarterly
General Survey report; (b)
Quarterly Exploration report; (c)
monthly production report; (b)
quarterly production report; (c)
annual production report; (d)
annual financial statements
Mining Authorization (KP)
 Work Plan and Budget
presented to the Government at
the beginning of each KP
issuance
 No firm commitment on
minimum spending for General
Survey or Exploration
 Shall furnish: (a) Quarterly
General Survey report; (b)
Quarterly Exploration report; (c)
monthly production report; (b)
quarterly production report; (c)
annual production report; (d)
annual financial statements
IUP
 Work Plan and Budget
presented to the Government at
the beginning of each KP
issuance
 No firm commitment on
minimum spending for General
Survey or Exploration
 Shall furnish: (a) Quarterly
General Survey report; (b)
Quarterly Exploration report; (c)
monthly production report; (b)
quarterly production report; (c)
annual production report; (d)
annual financial statements
 OPERATING PERIOD

CCOW/COW Mining Authorization (KP) IUP

 30 years (excluding  30 years (including  20 years (including
Construction Period) and Construction Period) and construction period) and
extendable as agreed by extendable 2x10 years extendable 2x10 years
the parties  Commencement after  Commencement after
 Commencement after the issuance of KP issuance of IUP
reaching 70% average Exploitation Production
daily throughput of
designed capacity of
designed facility but not
later than 6 months of
operating facilities
 TAXES, ROYALTIES, PRODUCTION
SHARING
CCOW/COW Mining Authorization (KP) IUP
 For coal 13.5% of total  Royalties as determined  Royalties determined by
coal produced by the Government from the Government from
 For minerals as agreed time to time (lastly by time to time (lastly by
in the COW Government Regulation Government Regulation
 Corporate tax as agreed 45/2003) 9/2012
in each CCOW/COW  Coal royalties (Coal  Coal royalties (Coal
ranging from 30% - 45% Production Proceeds – Production Proceeds –
DHPB) ranging from 3% - DHPB) ranging from 3% -
7% depends on the 7% depends on the
Calorific Value of coal for Calorific Value of coal for
open cut mining and 2% open cut mining and 2%
- 6% for underground - 6% for underground
mining mining
 Mineral royalties lastly as  Mineral royalties lastly as
stipulated in Government stipulated in Government
Regulation 45/2003 Regulation 3/2012
 MARKETING

CCOW/COW Mining Authorization (KP) IUP

 Right to export limited by  Right to export due to  Domestic Market Obligation
Indonesian national policy restriction by the Minister of determined by the Minister of
and not impairing obligation Mines and Energy Energy and Mineral
of Contractor under relevant Resources
coal supply agreements
with third parties
 Under CCOW the
Government may appoint
Contractor as its selling
agent under certain
commercial arrangement
acceptable to the parties
 Ownership passes to
Contractor at the point of
delivery
 EQUIPMENT, IMPORT - EXPORT

CCOW/COW Mining Authorization (KP) IUP

 Materials, supplies, plant and  Importation in accordance with the  Importation in accordance with the
equipment imported under import prevailing import regulations prevailing laws and regulations
facilities, exemption or  Materials, supplies, plant and  Materials, supplies, plant and
postponement of import duties equipment belong to the KP holder equipment imported belong to IUP
and tax holder
 To some contracts (CCOW 1st
Generation) materials, supplies,
plant and equipment shall become
the property of the Government
when landed in Indonesian port of
import or purchased locally
 Contractor is free to enter into any
arrangement in relation to usage
of third parties’ belongings to
support its mining activities
 Imported items shall be re-export
due to its import term
 If sold domestically all import
duties, levies and taxes shall be
paid in accordance with the
prevailing laws
 BOOKS, ACCOUNTS AND AUDITS

CCOW/COW Mining Authorization (KP) IUP

 Allowed to keep books  In accordance with the  In accordance with the
and records in USD prevailing laws (in prevailing laws
 Government (or its Rupiah unless for certain  Inspection by the
representatives) has purposes as approved by Government in
right to inspects books, the Minister of Finance) accordance with the
records, and accounts  Inspection by the prevailing laws
Government in
accordance with the
prevailing laws
 PAYMENTS AND CURRENCY

CCOW/COW Mining Authorization (KP) IUP

 All payments to the Government of  All payments to the Government in  All payments to Indonesian
Indonesia to be made in USD or accordance with the prevailing laws Government in accordance with
other currency as agreed by the  Coal sales proceeds to paid in prevailing laws and regulations
parties account at bank in Indonesia  Coal sales proceeds and loan to be
 Some Contractors have the right to paid/received in account at bank in
place the proceeds of sale of coal Indonesia (BI Regulation
in a bank outside of Indonesia 13/20/2011)
 No obligation for Contractor to use  Repatriation of funds abroad to be
LC conducted in accordance with the
 Has the right to make payment in investment laws
USD or any other currency other
than Rupiah to its suppliers or
subcontractors
 All investment remittance (equity
capital or loan capital) to be
deposited in PMA account in
foreign exchange bank in
Indonesia
 Right to repatriate or to remit
abroad certain funds in
accordance with the prevailing
investment law
 ENABLING PROVISIONS

CCOW/COW Mining Authorization (KP) IUP

 Contractor has the sole right to enter  Right to construct facilities, right of Right to construct facilities, right of ways,
into CCOW/COW area for purpose of ways, easements, and other necessary easements, and other necessary support
mining activities designated by each support from the Government are given from the Government are given in
contract in accordance with the general accordance with the general prevailing
 Contractor has the sole right to prevailing laws and regulations laws and regulations
remain with in the contract area
 Contractor has the right to construct
facilities deemed necessary for
supporting its mining activities and
notify the Government of the
construction
 Contractor is given the right to
construct, right of way, right to lay or
pass on, over or under land or water,
any roads, railways, pipes, pipelines
etc.
 The use and occupancy areas covered
by plans where mining supporting
facilities are constructed shall not
subject to any payment by contractor
of levies
 Government to assist the Contractor
by supplying at Contractor’s request
necessary transportation, security
protection
 … E N A B L I N G P R OV I S I O N S

CCOW/COW Mining Authorization (KP) IUP

 Contractor has the right to take and
use from CCOW/COW area such
timber (for construction purposes),
soil, stone, sand, gravel, lime,
gypsum, water and other products
and material necessary for its mining
operations
 Contractor has the right to clear away
and remove such timber, overburden
and other obstruction for mining
operations unless such right already
provided to other parties by the
Government
 Contractor has the right to acquire
and operate radio communications,
helicopters, other air craft and other
facilites and equipment
 SUSPENSION OF OPERATION
& FORCE MAJEURE
CCOW/COW
 At any time Contractor may request
to the Government to suspend the
mining activities and such request
will not be unreasonably withheld
 If such suspension is given, the period
of contract shall be extended equal to
suspension period
 Suspension doesn’t affect mutual
rights and obligations of the parties,
except for the obligation suspended
 Contractor or the Government shall
not be liable of breach of contract
caused by Force Majeure
 Force Majeure includes amongst
other things, wars, insurrections, civil
disturbances, blockades, embargoes,
strikes and other labor conflicts, riots,
epidemics, earthquake, storms,
floods, or other adverse weather
conditions, explosions, fires, lightning,
Acts of God or the public enemy,
breakdown of facilities or machinery,
what ever occurring, any cause over
which the affected party has no
reasonable control
Mining Authorization (KP)
 No specific provisions on suspension
and force majeure
IUP
 Temporary suspension because of (a)
force majeure; (b) disruption; (c)
environment capacity
 Force Majeure includes wars, civil
disturbance, insurrections, epidemics,
earthquake, flood, fires, and other
natural disaster out of human control
 Disruption includes blockage,
stoppage, industrial dispute,
occurrence of regulations hampering
mining activities
 Suspension shall not decrease the
period of IUP
 Suspension because of force majeure
releasing IUP holder from any of its
obligation in accordance with the
prevailing laws
 Suspension because of disruption
doesn’t not release IUP holder from
financial, environment management
and health and safety requirements
 SETTLEMENT OF DISPUTES

CCOW/COW Mining Authorization (KP) IUP

 International Arbitration  State Administrative  State Administrative
or Domestic Arbitration Court Court
forums
 CORPORATE SOCIAL RESPONSIBILIT Y

CCOW/COW Mining Authorization (KP) IUP

 Contractor to promote  No specific stipulation  IUP holder to conduct
and support corporate social
development of regional responsibility
infrastructure

CCOW/COW
 Gradually starting from the 5th Operating
Period at least ≥51% of issued shares
shall be offered and purchased by
Indonesian Participant
 Indonesian Participant defined as (a)
Government of Indonesia; or (b)
Indonesian nationals; or (c) Indonesian
companies controlled by Indonesians
DIVESTMENT
Mining Authorization (KP)
 No divestment stipulation since it is
intended to be owned and controlled by
Indonesian nationals
IUP
 Foreign Capital holding IUP and IUPK
after 5 years production shall divest their
shares until at least 51% of the shares
then owned by Indonesian participant
 Indonesian participant defined as
Indonesian Government, Provincial
Governments, Regencies, State Owned
Enterprises (BUMN), Regional
Government Owned Enterprises (BUMD)
or national business entities
 The Government of Indonesia is in the
first priority, followed by Regional
Governments (Provinces or Regencies)
 If no one of the above interested, shall
be offered to BUMN and BUMD through
auction
 If no BUMN or BUMN interested, shall be
offered to national business entities
through auction
 AMENDMENT TO MINING RIGHT
PROVISIONS
CCOW/COW Mining Authorization (KP) IUP
 Parties shall consult  Amendment to the  Amendment to IUP
each other in revising provisions of KP provisions conducted in
certain provisions of the conducted in accordance accordance with the
contract considering with the prevailing laws prevailing laws and
relevant circumstances and regulations regulations
relating to the condition
of the contract
 Consultation shall be
conducted in good faith
 Any amendment to the
contract shall be based
on mutual agreement of
the parties
 Failure to agree doesn’t
constitute breach of
contract
 ASSIGNMENT

CCOW/COW Mining Authorization (KP) IUP

 CCOW/COW can be  KP can be transferred  IUP cannot be
assigned to its affiliates upon approval of the assigned/transferred to
by notification to the Minister/Governor/Rege any other parties
Government nt in accordance with
 Assignment to non- their respective authority
affiliates shall be
approved by the
Government
 FINANCING

CCOW/COW Mining Authorization (KP) IUP

 Contractor shall be fully  KP holder shall be fully  IUP shall be fully
responsible for financing responsible for financing responsible for financing
the project and maintain the project and maintain the project and maintain
sufficient capital to carry sufficient capital to carry sufficient capital to carry
out obligation under the out obligation under the out obligation under the
contract contract contract
 TRANSFER OF SHARES

CCOW/COW Mining Authorization (KP) IUP

 Transfer of shares in  Not regulated (in some  Transfer of ownership
CCOW/COW holders KPs it is required to and/or shares can be
shall upon approval from obtain prior approval conducted only after
the Government (certain from the authority having minimum 2
generation of issuing the KP potentials within
CCOW/COW) Exploration period
 ISSUES’ HIGHLIGHTS
COAL CONTRACT OF WORK
& CONTRACT OF WORK
 LEGAL ANALYSIS
C OA L U P G R A D I N G A N D E X P O R T B A N

LEGAL BASIS SUBSTANCES ISSUES

• Export control through GR •What does processing (especially for
LAW 4/2009 • IUP & IUPK to enhance value added of
mineral and coal) mean?
minerals and/or coal
ARTICLES 5, • IUP & IUPK Production to conduct
102, 103 & 170 processing and refining domestically •What level of regulation to stipulate
• COW holders to conduct refining processing & refining?
within 5 years as of 12 January 2009

•Can a ministerial regulation ban

• Minerals IUP & IUPK holders to
unprocessed minerals or coal export?
GR 23/2010 as conduct processing and refining
lastly amended • Coal IUP & IUPK holders to conduct •May a ministerial regulation stipulate
processing (as defined in the matters which are not delegated by
by GR 1 of 2017 elucidation of Article 94)
higher regulations?
• Enhancement of coal value added
thru mineral and coal processing
•Legal certainty & other issues?
 …
Law 4/2009 IUP and IUPK holders must enhance added value to mineral and/or coal resources in undertaking mines,
Art 102 processing and refining as well as minerals and coal utilization.
Law 4/2009 IUP and IUPK holders as intended by section (1) may process and refine mining products of others IUP and
Art 103 (2) IUPK holders.

Law 4/2009 Ancillary provisions on enhancement of added value as intended by Article 102 as well as processing and
Art 103 (3) refining as intended by section (2) shall be governed by government regulation.

GR 23/2010 ELUCIDATION OF What does amongst other

ARTICLE 94(1) ARTICLE 94(1)
things mean? Does it give
The processing intended in
choices to IUP & IUPK
this article amongst holders to choose which
“Coal IUP Production and process suits them?
other things:
IUPK Production holders
Coal crushing
must conduct coal
Coal washing
PROCESSING in order to
Coal blending
enhance value added of the
Coal upgrading
coal produced, directly or
Coal briquetting
thru cooperation with other
Coal liquefaction
IUP and IUPK holders”
Coal gasification
Coal water mixer
 …

GR 23/2010
Art 96
Ancillary provisions on procedures enhancing added value to minerals and coal as intended by Article 95
added value shall be governed by Minister Regulation.

Question

How far the Minister Regulation would go to stipulate the procedures for added value enhancement? Can it
impose export restriction as part of added value enhancement procedures? Or can it stipulate matters
which higher regulations have not delegated authority to do so?

•Upon consultation with the House of Representative the may adopt Law 4/2009
a policy on preference for domestic mineral/coal needs Article 5
•It is implemented thru production and export control
•The export control to be regulated under a Government Regulation
 …

LAW 12/2011 ON HIERARCHY CONSTITUTION

UUD 1945
LAW MAKING ART 7(1)
PROCESS PEOPLE ASSMEBLY
DETERMINATION

LAW / STATUE/
LEGISLATION
RULES
PRESIDENTIAL
REGULATION

ARTICLE 7(2) : A LOWER REGULATION MAY NOT BE IN CONTRARY WITH THE HIGHER PROVINCE
REGULATION (LEX SUPERIOR DEROGATES LEX INFERIOR) REGULATION

REGENCY
REGULATION
ARTICLE 8(2) : REGULATIONS WHICH ARE NOT MENTIONED IN THE REGULATION
HIERARCHY (INCLUDING MINISTER REGULATION) CAN ONLY BIND AND HAVE LEGAL
CONSEQUENCES FOR SO LONG THEY ARE INSTRUCTED BY HIGHER LEVEL
REGULATIONS.
 JOINT COAL SALES AGREEMENT

 Under certain CCOWs especially 1st and 2nd Generation, Contractor is obliged to deliver Government share of coal at
the delivery point or final processing on FOB basis

 The Government shall take the coal at the final processing at Contractor’s site

 Under those relevant CCOW it is agreed that Government may request Contractor to sell as its agent, all or part of
Government’s share of coal, and Government together with Contractor will make a commercially acceptable to the
parties an agreement relating to such sale of Government’s share of coal namely Joint Coal Sales Agreement (“JCSA”)

 The case is that most of the JCSAs have expired and no commercially acceptable agreement reached between the
Government and the Contractors

 Currently the Contractors are still acting as Government’s coal selling agent until the Government requests the
Contractors to stop

 The conduct of the Contractors as the selling agent of Government share of coal only based on silent agreement
between the parties

 What does the law say? How to resolve?

 IMPORT DUT Y

 Generally, each CCOW and COW has clause where the Government holds harmless and exempts
the Contractor from import duties, customs and any other levies in relation to the equipment
imported by the Contractor for the purpose of performing its obligations under each CCOW/COW
for certain period of time or until the expiration of the Contract

 The imported items shall be re-export outside Indonesia or be surrendered to the Government (in
case the Contract stipulates the equipment becoming Government property)

 If they are sold or the ownership transferred domestically or used not only for the purpose of
mining activities within the Contractor’s contract area, then all exempted duties, customs or
levies and taxes shall be paid by the Contractor

 Currently, the Directorate General of Taxes are trying to impose the import tax, duties and levies
exempted and guaranteed to be exempted/postponed by the Government

 What does the law say? How do the CCOW/COW holders need to respond?
 CORPORATE TAX INSTALLMENT

 COW and COW which are executed before the enactment of Law 7/1983 regarding Income Tax according to
the Corporation Tax 1925 as amended and its implementing regulation pay income tax installment 1% of its
gross circulation of relevant tax period

 Upon enactment of Law 36 of 2008 (latest amendment to Law 7/1983) Article 25 Paragraph 1 Law
36/2008 stipulates that corporate tax installment to be paid by tax payer every month shall be the previous
Annual Tax Return less amount taxes paid (in accordance with Income Tax Articles 21, 22, 23 and 24) divided
by 12 – or in substance monthly tax installment to be paid is 1/12 of previous Annual Tax Return

 Article 33 Paragraph 3 Law 7/1983 as lastly amended by Law 36/2008 stipulates that: “Taxable income
received or generated from oil and gas mining and other mining activities in relation to Contract of Work and
Production Sharing Contract existing at the enactment of this law, shall remain subject to the Corporation Tax
1925 and Law on Interests, Dividends and Royalties 1970 and their implementing regulations

 Decree of Director General of Taxes No. D.15.4.3.-03-11-67/MPS-MPO (“Decree 1967”) regarding the dated
25 Nopember 1967 which is the implementing regulation of Corporation Tax 1925 stipulates Income Tax
Installment to be paid is 1% of its gross circulation for relevant tax period

 How do the CCOW/COW holders need to respond?

 THANK YOU

Adri Kurnia Ibnu

adri.kurnia@adrikurnia.com