Indonesia is renowned for its abundant mineral and coal resources, making it a formidable player in the global mining industry. The nation's diverse geological landscape hosts extensive reserves of coal, minerals, and metals, contributing significantly to both domestic energy production and export revenues. With one of the world's largest coal reserves, Indonesia has positioned itself as a crucial supplier of coal to nations across Asia, further enhancing its economic strength.

The country's mineral and coal wealth has not only spurred domestic growth but also attracted substantial foreign direct investment. International companies recognize Indonesia's potential and have made substantial investments in mining operations, contributing to job creation, infrastructure development, and the nation's economic prosperity. Indonesia's commitment to responsible and sustainable mining practices has further bolstered its appeal to foreign investors, solidifying its status as a key player in the global mining arena.

With the increasing number of mining companies in Indonesia, investments made by both Domestic and Foreign Direct Investments (PMDN and PMA) play a crucial role in the industry. In the context of these investments, Law No. 3/2020 introduces the concept of mandatory divestment in mining business activities involving Foreign Direct Investment (PMA).

Divestment can be seen as the opposite of investment. While investment seeks to expand a company's assets, divestment involves reducing a company's financial or physical assets.

In the case of mining businesses with foreign investment (PMA), divestment serves the purpose of preventing any adverse impact on the country and its citizens. The procedures for divestment in mining companies are outlined in Government Regulation No. 96 of 2021, which covers the Implementation of Mineral and Coal Mining Activities.

According to Article 147 of this regulation, PMA entities are required to gradually divest a minimum of 51% of their shares to the Central Government, Regional Governments, State-Owned Enterprises (BUMN), Regional-Owned Enterprises (BUMD), and/or National Private Enterprises. This strategic move ensures a balanced and mutually beneficial partnership.

The divestment process takes effect during the production phase and is subject to the following conditions:

1. For open-pit mining operations not integrated with processing or refining facilities, or development and utilization activities, the ownership of shares by the Central Government, Regional Governments, State-Owned Enterprises (BUMN), Regional-Owned Enterprises (BUMD), and/or National Private Enterprises shall be as follows:
   • Tenth year: 5% (five percent), gradually increasing to fifty-one percent (fifty-one percent) by the fifteenth year.
2. For open-pit mining operations integrated with the entities mentioned above, the divestment conditions are as follows:
   • Fifteenth year: 5% (five percent), gradually increasing to fifty-one percent (fifty-one percent) by the twentieth year.
3. Underground mining operations not integrated with processing or utilization facilities owned by the mentioned entities shall adhere to the following divestment conditions:
   • Fifteenth year: 5% (five percent), gradually increasing to fifty-one percent (fifty-one percent) by the twentieth year.
4. For underground mining operations integrated with facilities owned by the mentioned entities, the divestment conditions are as follows:
   • Twentieth year: 5% (five percent), gradually increasing to fifty-one percent (fifty-one percent) by the twenty-fifth year.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled a lot of similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author: Dewi Susanti