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Doing Business in Indonesia

Doing Business in Indonesia. A Legal and Cultural Perspective By Ray Latimer Latimer & Associates Pty Ltd Presented to: OzMine Indonesia 2009 Trade Delegates 24-25 February, 2009 Pre-Departure Briefing Thursday 12 February, 2009 in Sydney. Summary. What we will cover

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Doing Business in Indonesia

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  1. Doing Business in Indonesia A Legal and Cultural Perspective By Ray Latimer Latimer & Associates Pty Ltd Presented to: OzMine Indonesia 2009 Trade Delegates 24-25 February, 2009 Pre-Departure Briefing Thursday 12 February, 2009 in Sydney

  2. Summary • What we will cover • The new mining legislation in Indonesia • A perspective of the Indonesian business culture • Why this is important? • The recent changes in the law may affect you or your customers directly • Being aware of the business culture is what sets you apart from the rest of the pack • End state • Your awareness of the changes in the law and an understanding of the Indonesian / South East Asian business culture will allow you to make a more informed commercial decision

  3. Recent Changes to Mining Laws • 1967 Mining Act • Dual System under the 1967 Mining Law • KP (Kuasa Pertambangan) • Domestic investment in the mining industry conducted via a system of KP • Relates to a specified area within a specified period of time • Holder of KP enters into arrangement with foreign company to conduct activity specified in the KP • Contract of Work (CoW) • between the Government of Indonesia and a foreign company, established as a PMA (Perushaan Penanaman Modal Asing) • Provides the rights and obligations of the mining co in respect of the development and operation of the mine • Valid for 30 years from commencement of commercial production. • Term can be extended • Coal Contract of Work (CCoW) – on similar terms as CoW

  4. Recent Changes to Mining Laws • New Mineral and Coal Mining Act • approved by the Dewan Perundangan Rakyat (equivalent House of Reps) on 16 December 2008 • System of KP, CoW, CCoW replaced with an IUP (Izin Usaha Petambangan) [Mining Business Licence] system • IUP made available for both foreign and domestic companies • IUPs awarded by way of tender process for mineral and coal mining • 2 types of IUP – Exploration and Operational & Production • Exploration IUP (inc survey, exploration and feaisibility study) – max 8 years • Operational & Production (inc construction, mining, processing, refining transporting) – max 20 years but can be extended for 2 periods of 10 years • Holder of Op & Prod IUP must process or refined mined materials within Indonesia • Empowers local governments to issue IUPs and collect royalties • Jakarta’s role – determine special mineral areas and allocate mining blocks that overlap districts

  5. Comments on the New Mining Laws • Support • Jakarta continues to play the main role in dealing with foreign investors whilst local governments deal with smaller domestic IUP • Simplifies CoW into a mining permit system • Issuance of IUPs carried out “transparently and democratically” (Department of Energy & Mineral Resources, 23 January 2009) • The requirement to process raw materials domestically in order to increase state revenue, create job opportunities and increase public welfare (Minister of Energy & Mineral Resources, Dr Purnomo Yusgiantoro, 22 January 2009)

  6. Comments on the New Mining Laws • Concerns • Expressed by Charlie Lenegan , MD Rio Tinto Australia, pre-New Mining Law in Ozmine 2007: • Failure to differentiate between small and major long term projects • Shared responsibility of central/provincial and regional governments in terms of issuance, cancellation, determination of types of minerals leading to overlaps and uncertainity • Certainty of CoW replaced by uncertainty • State Owned Enterprises (SoEs) as primary licence holders acting with others act as a disincentive for large participation in large scale projects.Jakarta continues to play the main role in dealing with foreign investors whilst local governments deal with smaller domestic IUP • Simplifies CoW into a mining permit system • Issuance of IUPs carried out “transparently and democratically” (Department of Energy & Mineral Resources, 23 January 2009) • The requirement to process raw materials domestically in order to increase state revenue, create job opportunities and increase public welfare (Minister of Energy & Mineral Resources, Dr Purnomo Yusgiantoro, 22 January 2009)

  7. Comments on the New Mining Laws • Other Concerns • Mandatory requirement to process and/or refine within mined materials within Indonesia – need to invest in a downstream industry • Exit strategy of the foreign investor

  8. Comments on the New Mining Laws • Implementation is the key… • Possible challenges – provisions of the new law and Art 33(2) and (3) of the Constitution • Role of the Constitutional Court in this regard – ref to previous and ongoing challenges in the energy industry • Purview of the Constitutional Court – tests the constitutionality of statute in respect of the 1945 Constitution • Purview of the Supreme Court – determines the implementation of the following - Statutes (Undang-undang), Interim Laws (PERPU), Government Regulations (Peraturan Pemerintah), Presidential Regulations (Peraturan Presiden), Regional Regulations (Peraturan Daerah)

  9. Business Culture • Diversity Through Unity – pillar of the 1945 Constitution - Assimilation • Basic language skills • Etiquette, e.g. meeting – management and grass roots, formal / informal, business 2 business • Saving grace

  10. Thank You…

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