Overcoming legal and regulatory challenges in Indonesia
The Government Regulation 24 (GR 24) of 2012 mandates foreign investors to divest 20% of shares in IUP holder firm within 5 years of production commencement, and a further 31% by the tenth year. This essentially means that from the tenth year onwards, a total of 51% of the firm shares must be held by Indonesian participants.
The new regulation also mandates that in the issuance process of shares, IUP holder firms are to offer shares to the respective stakeholders in the sequential order; the Central Government, Provincial & Regional Governments, State-owned/ Regional-owned enterprises, and lastly to national private business entities that are 100% owned by domestic investors. In addition, the ownership stake of Indonesian participants cannot be diluted by future capital raising initiatives. The new regulations apply to IUP holders, but are currently leaves out CoWs and CCoWs.
A key implication of the Ministry of Energy & Mineral Resources Regulation 7 (MEMR 7) of 2012 is the banning of exports of unprocessed ore and minerals with effect from May 2012. Therefore, all IUP holders are obliged to engage in refining and processing of minerals mined in Indonesia. The Indonesian Government will enter into a ‘match-making’ process to pair up companies which produce minerals and local companies with excess capacity to process minerals. However, the new regulation does not apply to coal.
The new regulation hopes to safeguard the interest of the Indonesian society by restricting the outflow of financial gains from the mining industry overseas. With these revisions, foreign investors will have greater reservations about investing in Indonesia’s mining sector and have be more rigorous in their selection of a local partner.
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