Legal Brief

The Divestment Mechanism of Mining Company

GENERAL CONCEPTS

DIVESTMENT means
the selling off the foreign shares
to one of the following
Indonesian parties:

The Central Government

The President of the Republic of Indonesia who
holds the power of government of the Republic of
Indonesia assisted by the Vice President and
Ministers as referred to in the 1945 Constitution of
the Republic of Indonesia.

The Regional Government

The head of region as an element of regional government
administration who leads the implementation of government affairs
within the authority of the regional autonomy.

SOE / ROE
State-Owned Enterprise (SOE) means SOE engaged in the mining sector in accordance with
the provisions of laws and regulations, while Regional Owned Enterprises (ROE) means ROE
engaged in the mining sector in accordance with the provisions of laws and regulations.

The National Private Enterprises

Business entities incorporated in Indonesia with 100% (one hundred percent) domestic share ownership.

AHRP Legal Brief

HISTORICAL LEGAL FRAMEWORK FOR DIVESTMENT IN MINING SECTOR
The obligations to carry out the divestment are imposed to the holders of Mining Business Licence/Izin Usaha Pertambangan (IUP) and Special
Mining Business Licence/Izin Usaha Pertambangan Khusus (IUPK) with foreign investment in certain years during their operation and production
stage. Historically, the divestment has been regulated by the following laws and regulations:

Government Regulation Number 23 of 2010

Following the 5th year since the production, the foreign
shares must be divested. Hence, at least 20% of the 2010
shares are owned by Indonesian entities

Government Regulation Number 24 of 2012

Following the 5th year since the production, the foreign
2012 shares must be divested gradually, therefore at least
51% of the shares shall be owned by Indonesian
entities in the 10th year.

Government Regulation Number 77 of 2014

The divestment mechanism is distinguished by the

mining company with the processing and/or refining,
the underground mining methods, as well as the
hybrid method of the underground mining and open pit
mining.
2014
Government Regulation Number 1 of 2017 and
MoEMR Regulation Number 9 of 2017

Following the 5th year since production, the foreign

shares must be divested gradually, therefore at least
2017 51% of the shares shall be owned by Indonesian
entities in tenth year. Additionally, the Minister of
Energy and Mineral Resources (MoEMR), sets out the
Procedures for Divestment and Pricing Mechanisms.

MoEMR Decree Number 84 of 2020

MoEMR sets out the comprehensive guidelines for 2020

bidding, evaluation, and calculation of price for
divestment of shares.

Government Regulation Number 96 of 2021

2021 The prevailing regulation for the Divestment which

should be carried out by the holders of IUP and IUPK.

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 DIVESTMENT TIMELINE FOR OPEN PIT MINING (1/2)

Pursuant to Article 147 (2) Government Regulation Number 96 of 2021 on the Implementation of Mineral and Coal
Mining Business Activities (GR 96/2021), the divestment shall be carried out with the following schedule:

1 51%
Open-Pit Method and Not Integrated
Shares ownership of the Central Government, Regional 30%
Governments, SOE, ROE and/or national private enterprises
in business entities, within the context of foreign investment, 20%
which hold IUP and IUPK in Operation and Production stage
15%
as well as whose mining activities are carried out with open
pit mining method, but not integrated with processing and/or 10%
refining facilities or development and/or utilization activities
shall at least be in the following percentages: 5%

Year since the

first Production 10th 11th 12th 13th 14th 15th

2
Open-Pit Method and Integrated 51%
Shares ownership of the Central Government, Regional
Governments, SOE, ROE and/or national private enterprises 30%
in business entities, within the context of foreign investment,
20%
which hold IUP and IUPK in Operation and Production stage
as well as whose mining activities are carried out with open- 15%
pit method and integrated with processing and/or refining
facilities or development and/or utilization activities shall at 10%
least be in the following percentages:
5%
18th 19th

Year since the

first Production 15th 16th 17th 18th 19th 20th

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 DIVESTMENT TIMELINE FOR OPEN PIT MINING (2/2)

3 51%
Underground Method and Not Integrated
30%
Shares ownership of the Central Government, Regional
Governments, SOE, ROE and/or national private enterprises in 20%
business entities, within the context of foreign investment,
which hold IUP and IUPK in Operation and Production stage as 15%
well as whose mining activities are carried out with
underground mining method, but not integrated with processing 10%
and/or refining facilities or development and/or utilization
activities shall at least be in the following percentages: 5%

Year since the 20th

15th 16th 17th 18th 19th
first Production

51%

4 30%
Underground Method and Integrated
20%
Shares ownership of the Central Government, Regional
Governments, SOE, ROE and/or national private enterprises
15%
in business entities, within the context of foreign investment,
which hold IUP and IUPK in Operation and Production stage 10%
as well as whose mining activities are carried out with
underground mining method and integrated with processing 5%
and/or refining facilities or development and/or utilization
activities shall at least be in the following percentages:

Year since the 20th 21st 22nd 23rd 24th 25th

first Production

AHRP Legal Brief

 DIVESTMENT MECHANISM
Business Entities holding IUP and IUPK at the Operation and Production stage in the context of
foreign investment are required to divest shares of at least 51% (fifty one percent) through the
offering with the following stages:

Response to the Offering

Offering through the MoEMR (30 calendar days)
CENTRAL GOVERNMENT

Evaluation and Negotiation Settlement of Divestment

of the Share Price (12 months)
(90 calendar days)

Offering to the Regional Government

(7 working days since the rejection Settlement of Divestment
from the MoEMR) (12 months)
REGIONAL GOVERNMENT
Response to the Offering
(30 calendar days)

Offering to the Regional Government

(7 working days since the rejection Settlement of Divestment
from the Regional Government) (12 months)
SOE / ROE

Response to the Offering

(30 calendar days)

Offering to the Regional Government

(7 working days since the rejection Settlement of Divestment
from SOE / ROE) (12 months)
NATIONAL PRIVATE
ENTERPRISES
Response to the Offering
(30 calendar days)

In the event that none of the abovementioned parties are not

interested with the offer, the divestment may be carried out
through the Indonesian Stock Exchange.
AHRP Legal Brief
EARLY DIVESTMENT MECHANISM

Business Entities holding IUP and IUPK with more than 49% (forty nine percent) of foreign
ownerships may carry out the divestment prior to the mechanism as referred to in
Article 147 (2) GR 96/2021, with the following mechanism:

The Divestment shall be first offered to the SOE

The SOE shall provide the written response to

Response to
the offer within maximum period of 75 (seventy-five)
calendar days. the Offering

In the event that SOE is not interested or does not

provide a written response within period of 75
(seventy-five) calendar days, the holders of IUP and
IUPK may submit the approval for the transfer of
foreign owned shares to MoEMR.

AHRP Legal Brief

 THE PRICE OF SHARES AND OFFERING MECHANISM
Pricing Calculation

The holder of IUP and IUPK on the Operation and Production stage shall calculate the divestment share price using the
following method:

1 Discounted cash flow of economic benefits based on free cash flow during the period from the implementation of the share
divestment to the earlier of:
the end of the validity period of IUP and IUPK on the Operation and Production stage including the extension period
1
thereof; or

2 reserve age according to the approved feasibility study document; and/or

2 Comparison of market data (market data benchmarking)

The Offer of Shares

The holder of IUP or IUPK on the Operation and Production stage shall submit the offer of divestment to the Central
Government through the MoEMR by submitting:

The Offering Letter The Supporting Documents

Signed on a duty stamp by the
directors of the business entity
containing the amount of the
divestment shares to be sold as well
as the price of the divested shares
1.
The Supporting Documents shall consist of the following:
1 2
Resources and reserves A list of the composition of the directors and
balance data that has been commissioners accompanied by identity and tax
verified by a competent person. identification number and/or tax identity.
The Offering Letter shall be
accompanied by several
supporting documents regarding
the details of the company and
divestment consideration.
2.
3 4
Financial reports for the last 3
Documents for calculating the
(three) years that have been
divestment share price.
audited by public accountant.

5 6 7
Approved environmental documents. List of shareholders up to the beneficial ownership. Approved feasibility study documents.

AHRP Legal Brief

KEYNOTES ON THE DIVESTMENT MECHANISM

DILUTION OF SHARES

In the event that there is an increase in the amount of capital held by IUP and
IUPK holders, the shareholding composition shall still be subject to the
divestment provisions as referred to in Article 147 (2) GR 96/2021.

SANCTIONS

Business Entities holding IUP and IUPK which do not carry out the divestment obligation shall
be subject to administrative sanctions, in form of:

01 Written warning
Shall be given maximum of 3 (three) times with a warning period of
30 (thirty) calendar days each.

Partial / Total Temporary Suspension the Mining Activities

02 Shall be imposed maximum of 60 (sixty) calendar days after the written

warning period ends.

Revocation of IUP and IUPK

03
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We will continue to follow the developments on this topic and provide additional information as it becomes
available. If you have any questions on this topic, please contact:

Fatya Alesi Ahmad Farizi

fatya@ahrplaw.com

Daffa Hadyansha
daffa@ahrplaw.com

Hafidz Laksamana Botua

hafidz@ahrplaw.com

World Capital Tower 19th floor

Jl. Mega Kuningan Barat No.3, Kuningan
Jakarta 12950 Indonesia

P: +6221 50917915
+6221 50917916
E: office@ahrplaw.com

www.ahrplaw.com
This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not
intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee concerning
the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your
circumstances before deciding to take any action.