Business entities that hold Mining Business Permits (Izin Usaha Pertambangan or IUP) or Special Mining Business Permits (Izin Usaha Pertambangan Khusus or IUPK) and are in the stage of production operation, whose shares are owned by foreigners, are required to gradually divest their shares by 51% (fifty-one percent) to the Central Government, Regional Governments, State-Owned Enterprises (Badan Usaha Milik Negara or BUMN), Regional-Owned Enterprises (Badan Usaha Milik Daerah or BUMD), and/or National Private Enterprises. The government has issued a new regulation on mining in Indonesia, namely Government Regulation No. 96 of 2021 concerning the Implementation of Mineral and Coal Mining Business Activities ("GR 96/2021"), replacing Government Regulation No. 23 of 2010 ("GR 23/2010").

One of the clauses regulated in GR 96/2021 is related to share divestment. This regulation in Indonesia modifies the scheme for determining the obligation of 51% share divestment for foreign investment. Although the obligation for foreign investors to divest 51% of their shares remains the same as the previous regulation, the time requirement or implementation stages are more flexible than before.

The 51% share divestment can be carried out gradually for up to 15 to 20 years, whereas in GR 23/2010, the 51% share divestment must be implemented gradually starting from the sixth year until the tenth year of the company's production operation period.

Based on GR 23/2010, the share divestment for Mining Business Permits (IUP) and Special Mining Business Permits (IUPK) starts at 20% in the sixth year, 30% in the seventh year, 37% in the eighth year, 44% in the ninth year, and 51% in the tenth year. Meanwhile, Article 147 of GR 96/2021 states the following:

1. For open-pit mining methods that are not integrated with processing and/or refining facilities or development of utilization activities, the ownership of shares by the Central Government, Regional Governments, State-Owned Enterprises, Regional-Owned Enterprises, and/or National Private Enterprises, the divestment process will only begin in the tenth year with a 5% share divestment offer. Then it will gradually increase as follows:
   in the 11th year: 10%
   in the 12th year: 15%
   in the 13th year: 20%
   in the 14th year: 30%
   in the 15th year: 51%.
2. For those who conduct mining activities using open-pit mining methods that are integrated with processing and refining facilities or development of utilization activities, the ownership of shares by the Central Government, Regional Governments, State-Owned Enterprises, Regional-Owned Enterprises, and/or National Private Enterprises, the divestment obligation will begin in the fifteenth year with a 5% share divestment offer. Then it will gradually increase as follows:
   in the 16th year: 10%
   in the 17th year: 15%
   in the 18th year: 20%
   in the 19th year: 30%
   in the 20th year: 51%.
3. For the implementation of share divestment for mining activities using underground mining methods that are not integrated, the divestment can only begin in the 16th year with a 10% share divestment offer, followed by:
   in the 17th year: 15%
   in the 18th year: 20%
   in the 19th year: 30%
   in the 20th year: 51%.
4. For underground mining activities integrated with processing and/or refining facilities, the divestment requirement is even more relaxed. The divestment of shares begins in the 20th year at 5%, then gradually increases as follows:
   in the 21st year: 10%,
   in the 22nd year: 15%,
   in the 23rd year: 20%,
   in the 24th year: 30%, and
   in the 25th year: 51%.

The transfer of 51% divestment is not something that needs to be immediately implemented at the beginning of the year. Rather, it is a phased scheme with increasing percentage amounts each year until reaching the maximum divestment amount of 51%.

If you need consultation concerning these issues, Schinder Law Firm is one of the many corporate law firms in Indonesia. Our professional civil lawyers strive to understand your unique needs and concerns. We will develop creative, cost-effective ways to assist you. Contact us at info@schinderlawfirm.com today to schedule a consultation to discuss your situation and how we can help.

Author: Dewi Susanti