Review of the Indonesian Mining Industry

Legal Updates
Review of the Indonesian Mining Industry
18 October 2012

Indonesia's Constitutional Court (the "Court") issued decisions in two cases on June 4, 2012, that could help change the playing field in the mining industry, giving smaller companies the chance to compete with big miners.

In separate rulings in cases brought by tin miners from Bangka-Belitung Province, the Court found that several provisions of Law No. 4 of 2009 regarding Mineral and Coal Mining (the 2009 Mining Law) were unconstitutional and not binding.

Background: The 2009 Mining Law

The 2009 Mining Law was enacted to replace the 1967 Mining Law. The most noticeable feature of the 2009 Mining Law was the introduction of a licensing system involving various types of licenses, including Mining Business Licenses ("IUP"). The IUP replaced the contract and licensing system adopted in the 1967 Mining Law, which featured Mining Rights, Contracts of Work ("COW") and Coal Contracts of Work ("CCOW").

In the cases that went to the Constitutional Court, the Government argued that the 2009 Mining Law covered previously overlooked regulatory issues, providing the legal certainty necessary to promote a healthy investment climate while at the same time protecting the interests of all Indonesians. The petitioners, however, argued that the 2009 Mining Law only protected high-capital companies and did not offer the same legal protection to smaller businesses or individual miners.

Constitutional Court Review

The petitioners in the two cases asked the Court to review several provisions in the 2009 Mining Law, as follows:

  • Article 22 (a), (c) and (f) regarding criteria to determine People's Mining Areas ("WPR");
  • Article 38 regarding business entities that are entitled to obtain an IUP;
  • Articles 51, 60 and 75 (4) regarding the tender process to obtain an IUP area and Special IUP area;
  • Articles 52 (1), 55 (1) and 61 (1) regarding the minimum IUP area for the exploration of metal minerals, non-metal minerals and coal; and
  • Articles 169 (a) and 172 regarding transitional provisions for a COW and CCOW.

The petitioners asked the Court to find these provisions unconstitutional and not binding on the grounds that they contradicted Articles 27 (1), 28D (1), 28I (2) and 33 (4) of the Constitution. Article 27 (1) of the Constitution governs equality before the law and Article 28D (1) provides protection, legal certainty and equality before the law. Article 28I (2) prohibits discrimination while Article 33 (4) ensures economic democracy.

Constitutional Court Decision: Determining a WPR

The Court found Article 22 (f) unconstitutional and not binding as it limited local people's right to obtain a WPR by requiring that the mining area be operated for at least 15 years. The Court agreed with the petitioners that it was rare to have a mine operated by local people for at least 15 years. However, the Court rejected the petitioners' request to find Article 22 (a) and (c) unconstitutional, finding that the requirement to obtain a WPR stated therein could be adapted and applied depending on local conditions.

Eligibility for IUPs

Article 38 was also upheld by the Court. The petitioners had claimed the Article limited the granting of IUPs to a

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