COAL CONTRACT OF WORK, Legal Status, CONTRACT ......IUP/KP is grantedby the Government authority...

Legal Status,

Rights &

Obligations,

Privileges

COAL CONTRACT OF WORK,

CONTRACT OF WORK &

MINING BUSINESS LICENSES

ADRI KURNIA SH., MH., LLM.

WAKIL KETUA UMUM APBI BIDANG HUKUM DAN

PERUNDANG-UNDANGAN

DISKUSI PUBLIK: MENAKAR RENCANA REVISI UU NO. 4

TAHUN 2009 TENTANG PERTAMBANGAN MINERAL DAN

BATUBARA

AUL A UN I VE RS I TA S I S L AM B AN DUN G , 10 TH F EB RUA RY 2 020

CURICULUM VITTAE

Adri Kurnia Ibnu, S.H., M.H., L.LM., ACIARB

General Manager Legal PT Kaltim Prima Coal

([email protected], [email protected] - 08115808572)

Education Background:

•SMU Taruna Nusantara, Magelang (1996 – 1999)

•Law School of Padjadjaran University (S.H.,2005)

•Law School of University of Indonesia (M.H., 2014)

•Murdoch University, Perth, Western Australia (non degree – InternationalArbitration, 2011)

•Leiden University Law School, the Netherlands (L.LM., 2017)

Working Experience:

•Adnan Buyung Nasution & Partners

•Bahar & Partners

•Gani Djemat & Partners

•Makes & Partners

•Makarim & Taira

•PT Kaltim Prima Coal (2008 –now)

Associations & Organisations:

•Chartered Institute of Arbitrators, London, UK (Associate)

•Deputy Chairman of APBI (Head of Legal and Regulatiory Division), 2018-2021

•Head of Legal Committee at the Indonesian Mining Association (IMA, 2018-2020)

•Vice Chairman of Strategic Policy at Perhapi (2018 –2021)

Invited as speakers in the latest national, events:

Petromindo: One-Day Conference on the GovernmentRegulation Number 24/2012 on the Implementation of Coaland Mineral Mining Business activities, JW Marriott HotelJakarta, 29 March 2012

Mining from A to Z, Business Practitioners and Lawyers'Experience, Hilton Hotel Bandung 8 -10 February2012

Strategic Asia: Generic Rules or Commodity basedRegulations in Promoting Higher Domestic Value Added inNatural Resources Use: Lesson from the Coal Industry, LeMeridien Hotel, Jakarta 2 February2012

Internationalevent:

International Financial Law Review: Indonesia Forum -Negotiating the Legal Landscape, Fullerton HotelSingapore, 23 November 2010

Field of expertise:

•Mining

•Energy

•Investments

•Project Financing

•EPC Contracts

•Mining Tax Disputes

mailto:[email protected]


LEGAL STATUS & CONSTRUCTION

COAL CONTRACT OF WORK

& CONTRACT OF WORK

CCOW & COW

Are agreements endorsed by the Government of Indonesia through a process

requiring consultation with the House of Representatives as required by Article 10(3)

of Law 11/1967. The process is mirroring the legislation making process

Subject to Indonesian Civil Code Book 3 – Contract Law

Parties to the Contract have equal position to each other

An Agreement can not be amended, unless it is upon the parties to the agreement’s

consent

IUP – KP/Mining Authorization

IUP/KP is granted by the Government authority through beschikking or one sided

determination given by the law to a public authority

Not a mutual agreement between the Government official and investor, but solely the

decided by the Government official in accordance with his authority in accordance

with the prevailing laws

LEGAL STATUS

CCOW & COW / IUP

CCOW/COW APPLICATION PROCESS

PRESIDENT

CAPITAL INVESTMENT

COORDINATING BOARD

MINISTER OF ENERGY

& MINERAL RESOURCES

HOUSE

OF REPRESENTATIVES

APPLICANT

BANK

DIRECTOR GENERALMINERAL, COAL & GEOTHERMAL

DIRECTOR – MINERAL & COAL

ENTERPRISE DEVELOPMENT

NEGOTIATOR: CENTRAL GOVERNMENT

MINISTER OF FINANCE

DIRECTOR GENERAL OF TAXES

PROVINCIAL GOVERNMENT

LOCAL GOVERNMENT

OTHER STAKEHOLDERS

8B

10 9

7B 8A

7A

11

6

2A

1A

1 1B 2

3

5

Clause 1338 of Indonesian Civil Code states all duly executed contract shall be the law stipulating relationship

between the parties

A duly executed CCOW/COW shall be regarded as a law specifically stipulating relationship between the

Government of Indonesia and each party thereto in term of mining activities for relevant commodities as

agreed in each contract

The law made between Government of Indonesia and each CCOW/COW holder shall bind the parties

In case a general law made by the Government is in conflicting with the specific law made by the Government

each CCOW/COW holder, to the extent relationship between the Government and each CCOW/COW holder the

specific provisions of CCOW/COW shall prevail (Lex Specialis Principle?)

Under CCOW/COW Indonesian Government subject to provision of Contract Law under Indonesian Civil Code

having consequences it shall use provisions of Contract law to enforce its right under the contract

CONSTRUCTION OF CCOW/COW

UNDER INDONESIAN CIVIL CODE

Certain conditions in the CCOW and/or COW are nailed down or

grandfathered

The items stipulated is final, or in case a new rule exists the provisions of

CCOW/COW regarding the same shall continue to apply

If there differences occur between CCOW/COW and the prevailing laws, the

provisions of CCOW/COW shall prevail

NAIL DOWN – GRANDFATHER CLAUSE –

LEX SPECIALIS

Provisions of CCOW & COW Provisions of Law 4/2009

Contract shall not be amended, annulled, or

modified in any respect except by mutual consent

in writing of the parties

At the end of fifth year of Operating Period and

thereafter at 5 year intervals the parties shall

consult each other in case any revision required to

the contract; Consultation will be in good faith and

failure by the parties to agree on any revision shall

not constitute a dispute

Contractor shall process or to produce a marketable

products

Contractor shall prepare a feasibility study with

respect to possible smelter in Indonesia

Contractor acknowledge Government’s policy to

encourage domestic processing of all its natural

resources into final product where feasible

At the end of Exploration Period Contractor the

Contractor shall not be required to relinquish more

than 75% of its initial area

Article 169 (b) of Law 4/2009: All existing

CCOW/COW shall be adjusted in conformity to Law

4/2009, except for those relating to state revenue

Article 169(c): Provision of CCOW/COW relating to

state revenue shall not be adjusted in conformity to

Law 4/2009, unless conducted in order to increase

state revenue

Article 170: COW holders already in production

phase shall conduct domestic processing and

refining not later than 5 years as of the enactment

of Law 4/2009

• Article 171: CCOW and COW holders in exploration,

or feasibility study, construction or production to

submit long term plan over all

CCOW, COW AND LAW 4/2009H O W I S T H E L E G A L S TAT U S O F C C O W / C O W A F T E R T H E E N A C T M E N T O F L AW 4 / 2 0 0 9 ?

GENERAL COMPARISON

CCOW/COW, KP & IUP

Matters CCOW/COW IUP (Metallic Minerals & Coal)

Form Agreement License/permit

Basis Parties’ consent Judgment by the authorized governmentOfficial

Amendment On parties’ consent By the authorized government official based on the

prevailing laws

Mining activity phases All phases of mining activities given and guaranteed in

the contract

Permit holders must apply separate licensefor

each phase of mining activities

Royalties or production sharing For minerals depend on each CCOW

For coal Government share 13.5% FOB basis

For mineral vary (ex gold 3.75%)

For Coal depends on the Calorific Value, butnot

higher than 7% FOB price

Taxes The rate is vary from 30% to 45% Subject to prevailing tax laws, currently25%

Other financial obligations Nailed down as written in the contract Subject to prevailing laws

Term 30 years as of operating period Maximum 20 years as of Production IUP issuance

Initial Area 2nd and 3rd CCOW up to 100,000 hectares

COW up to 250 hectares (some earlier COW larger)

Metallic minerals up to 100,000 hectares

Coal up to 50,000 hectares

Assets ownership Government or CCOW/COW holder Permit holder

Dispute settlement forum International/Domestic Arbitrations Court of Administrative

COMPARISON CCOW/COW & IUP

CCOW/COW Mining Authorization (KP) IUP

• CCOW/COW is granted based on

application from investor

• Application submitted on behalf of

investor whether foreign or domestic

investors

• Company to be the party to the

contract established after principle

approval is given

• The CCOW company must specifically

having line of business to conduct

mining activities as provided under

the contract

• Contractor has the sole right to

conduct mining activities for

coal/minerals in the contract area

• CCOW/COW is a comprehensive

rights of mining activities from

General Survey, Exploration,

Exploitation, Transportation and

Sales.

• Commodities divided into 3

categories: Strategic, Vital, and non-

strategic/vital (due to their functions)

• One CCOW/COW for one company

• KP is granted based on application

made by applicant

• The applying company shall be

established from the beginning

before applying KP (in case applicant

is a company)

• The company shall specifically having

line of business to conduct mining

activities

• Company shall apply license for each

stage General Survey, Exploration,

Exploitation (transportation and sales

activities included)


categories: Strategic, Vital, and non-

strategic/vital (due to their functions)

• A company may own more than one

KP

• IUP is granted to the winner in the

auction for relevant mining area (for

coal & metallic minerals)

• The company shall be established

before joining the auction and shall

be engaged in mining business

• Two types of licenses, IUP Exploration

and IUP Production

• IUP Exploration consists of General

Survey, Exploration, Feasibility Study

activities

• IUP Production consists of

Construction,

Exploitation/Production,

Transportation and Sales activities

• IUP holder for exploration is

guaranteed to be given IUP

Production


categories: radioactive minerals,

metallic minerals, non-metallic

minerals, stones, and coal (due to

their intrinsic elements)

• One IUP for one company, except for

public companies

THE AWARD OF MINING RIGHT


For early generation CCOW/COW, the

area is granted as necessary required

according to geophysical data provided

by investor, but lastly it is stipulated

maximum 250,000 hectares to minerals

and 100,000 hectares to coal

At the latest of exploration period,

Contractor shall only retain not more

than 25% of initial area given under each

CCOW/COW (mandatory relinquishment)

and thereafter it is right of the Contractor

to voluntarily relinquish its area which

shall affective 30 days as of notification

date

Contractor shall recognize the existing

KPs already issued by Government

before the execution of CCOW/COW

Right of first refusal in case the

Contractor discovers other minerals

Right of first refusal to enlarge its

contract area if coal/mineral deposits

extending beyond CCOW/COW area as

long as it doesn’t infringe other exclusive

mining right given by the Minister

A KP mining area for General Survey

≤5,000 hectares, and a company cannot

have more than 25,000 hectares for

General Survey all over Indonesian mining

territory (a company can hold more than 1

KP)

A KP mining area for Exploration ≤2,000

hectares, and a company cannot have

more than 10,000 hectares for Exploration

all over Indonesian mining territory (a

company can hold more than 1 KP)

A KP mining area for

Exploitation/Production ≤1,000 hectares,

and a company cannot have more than

5,000 hectares for Exploitation all over

Indonesian mining territory (a company

may hold more than 1 KP)

Right of first refusal upon discovery of

deposits other than permitted in the KP

license

Mining Business License Area (WIUP) for

coal and metallic mineral is granted

through auction

IUP Exploration area for coal within 5,000

– 50,000 hectares, for IUP Production

≤15,000 hectares

IUP Exploration for metallic mineral within

5,000 – 100,000 hectares, for IUP

Production ≤25,000 hectares

IUP Exploration for non metallic mineral

within 500 – 25,000 hectares for IUP

Production ≤5,000 hectares

IUP Exploration for stones within 5 – 5,000

hectares, for IUP Production ≤1,000

hectares

First right of refusal without auction for

discovery of other commodities

Before starting mining activities, IUP

holder to compensate existing right over

land through lease or sale arrangement or

any other arrangement as agreed by the

parties

MINING AREA

...CCOW/COW …Mining Authorization (KP) …IUP

CCOW/COW holders shall

compensate all rights over the land

within the mining activities area (Art

26 Law 11/1967)

Compensation in the form of

acquiring the right over the land or

compensation only for the period the

land/building can not be used by the

owner (Art 25(1) Law 11/1967

Rights over land on which a mining

authorization has been granted

cannot be issued to any other party

unless agreed by the Minister of

Mines and Energy (Art 27(5) Law

11/1967)

Anyone owning right over a plot of

land in which a mining authorization

is granted shall allow mining

activities to be conducted by fair

compensation (Art 26 Law 11/1967

KP holder shall compensate all right

over the land by acquiring the right or

only for the period such right over land

cannot be used by the owner

Rights over land on which a mining

authorization has been granted cannot

be issued to any other party unless

agreed by the Minister of Mines and

Energy (Art 27(5) Law 11/1967)

Anyone owning right over a plot of land

in which a mining authorization is

granted shall allow mining activities to

be conducted by fair compensation (Art

26 Law 11/1967

…MINING AREA


Contractor incorporated and

domiciled in Indonesia

(except for the 1st COW)

Contractor may use

subcontractor (mining

service companies) in its

mining activities as

necessary required

Contractor may use its

affiliates in its mining

activities on arm’s length

basis transaction

Appointment subcontractor

doesn’t release Contractor

from its obligation under the

contract

Incorporated Indonesian

entity or individual

May use contractor (mining

service companies) in

conducting mining activities

No restriction in using

affiliates

No arm’s length basis

requirement

Incorporated Indonesian

entity

May use contractor (mining

service companies) in its

mining activities

Coal and mineral getting

activities are not allowed to

be conducted by mining

service companies

Affiliate restriction, unless

approved by the Minister

Appointment of mining

service companies in its

mining activities shall not

release IUP holder from its

liability under the mining

regulations

MODUS OPERANDI


To be submitted before the each

calendar year for Government

approval

In case Government doesn’t

approve the Work Plan and

Budget, the previous approved

Work Plan and Budget shall be

used as the basis

Work Plan and Budget can be

amended in case of

extraordinary circumstances

Minimum spending

commitment

Shall furnish: (a) Quarterly

General Survey report; (b)

Quarterly Exploration report; (c)

monthly production report; (b)

quarterly production report; (c)

annual production report; (d)

annual financial statements

Work Plan and Budget

presented to the Government at

the beginning of each KP

issuance

No firm commitment on

minimum spending for General

Survey or Exploration








Work Plan and Budget

presented to the Government at

the beginning of each KP

issuance

No firm commitment on

minimum spending for General

Survey or Exploration








WORK PROGRAM, EXPENDITURES AND

REPORTS


30 years (excluding

Construction Period) and

extendable as agreed by

the parties

Commencement after

reaching 70% average

daily throughput of

designed capacity of

designed facility but not

later than 6 months of

operating facilities

30 years (including

Construction Period) and

extendable 2x10 years

Commencement after

the issuance of KP

Exploitation

20 years (including

construction period) and

extendable 2x10 years

Commencement after

issuance of IUP

Production

OPERATING PERIOD


For coal 13.5% of total

coal produced

For minerals as agreed

in the COW

Corporate tax as agreed

in each CCOW/COW

ranging from 30% - 45%

Royalties as determined

by the Government from

time to time (lastly by

Government Regulation

45/2003)

Coal royalties (Coal

Production Proceeds –

DHPB) ranging from 3% -

7% depends on the

Calorific Value of coal for

open cut mining and 2%

- 6% for underground

mining

Mineral royalties lastly as

stipulated in Government

Regulation 45/2003

Royalties determined by

the Government from

time to time (lastly by

Government Regulation

9/2012

Coal royalties (Coal

Production Proceeds –

DHPB) ranging from 3% -

7% depends on the

Calorific Value of coal for

open cut mining and 2%

- 6% for underground

mining

Mineral royalties lastly as

stipulated in Government

Regulation 3/2012

TAXES, ROYALTIES, PRODUCTION

SHARING


Right to export limited by

Indonesian national policy

and not impairing obligation

of Contractor under relevant

coal supply agreements

with third parties

Under CCOW the

Government may appoint

Contractor as its selling

agent under certain

commercial arrangement

acceptable to the parties

Ownership passes to

Contractor at the point of

delivery

Right to export due to

restriction by the Minister of

Mines and Energy

Domestic Market Obligation

determined by the Minister of

Energy and Mineral

Resources

MARKETING


Materials, supplies, plant and

equipment imported under import

facilities, exemption or

postponement of import duties

and tax

To some contracts (CCOW 1st

Generation) materials, supplies,

plant and equipment shall become

the property of the Government

when landed in Indonesian port of

import or purchased locally

Contractor is free to enter into any

arrangement in relation to usage

of third parties’ belongings to

support its mining activities

Imported items shall be re-export

due to its import term

If sold domestically all import

duties, levies and taxes shall be

paid in accordance with the

prevailing laws

Importation in accordance with the

prevailing import regulations


equipment belong to the KP holder

Importation in accordance with the

prevailing laws and regulations


equipment imported belong to IUP

holder

EQUIPMENT, IMPORT - EXPORT


Allowed to keep books

and records in USD

Government (or its

representatives) has

right to inspects books,

records, and accounts

In accordance with the

prevailing laws (in

Rupiah unless for certain

purposes as approved by

the Minister of Finance)

Inspection by the

Government in

accordance with the

prevailing laws

In accordance with the

prevailing laws

Inspection by the

Government in

accordance with the

prevailing laws

BOOKS, ACCOUNTS AND AUDITS


All payments to the Government of

Indonesia to be made in USD or

other currency as agreed by the

parties

Some Contractors have the right to

place the proceeds of sale of coal

in a bank outside of Indonesia

No obligation for Contractor to use

LC

Has the right to make payment in

USD or any other currency other

than Rupiah to its suppliers or

subcontractors

All investment remittance (equity

capital or loan capital) to be

deposited in PMA account in

foreign exchange bank in

Indonesia

Right to repatriate or to remit

abroad certain funds in

accordance with the prevailing

investment law

All payments to the Government in

accordance with the prevailing laws

Coal sales proceeds to paid in

account at bank in Indonesia

All payments to Indonesian

Government in accordance with


Coal sales proceeds and loan to be

paid/received in account at bank in

Indonesia (BI Regulation

13/20/2011)

Repatriation of funds abroad to be

conducted in accordance with the

investment laws

PAYMENTS AND CURRENCY


Contractor has the sole right to enter

into CCOW/COW area for purpose of

mining activities designated by each

contract

Contractor has the sole right to

remain with in the contract area

Contractor has the right to construct

facilities deemed necessary for

supporting its mining activities and

notify the Government of the

construction

Contractor is given the right to

construct, right of way, right to lay or

pass on, over or under land or water,

any roads, railways, pipes, pipelines

etc.

The use and occupancy areas covered

by plans where mining supporting

facilities are constructed shall not

subject to any payment by contractor

of levies

Government to assist the Contractor

by supplying at Contractor’s request

necessary transportation, security

protection

Right to construct facilities, right of

ways, easements, and other necessary

support from the Government are given

in accordance with the general


Right to construct facilities, right of ways,

easements, and other necessary support

from the Government are given in

accordance with the general prevailing

laws and regulations

ENABLING PROVISIONS


Contractor has the right to take and

use from CCOW/COW area such

timber (for construction purposes),

soil, stone, sand, gravel, lime,

gypsum, water and other products

and material necessary for its mining

operations

Contractor has the right to clear away

and remove such timber, overburden

and other obstruction for mining

operations unless such right already

provided to other parties by the

Government

Contractor has the right to acquire

and operate radio communications,

helicopters, other air craft and other

facilites and equipment

… ENABLING PROVISIONS


At any time Contractor may request

to the Government to suspend the

mining activities and such request

will not be unreasonably withheld

If such suspension is given, the period

of contract shall be extended equal to

suspension period

Suspension doesn’t affect mutual

rights and obligations of the parties,

except for the obligation suspended

Contractor or the Government shall

not be liable of breach of contract

caused by Force Majeure

Force Majeure includes amongst

other things, wars, insurrections, civil

disturbances, blockades, embargoes,

strikes and other labor conflicts, riots,

epidemics, earthquake, storms,

floods, or other adverse weather

conditions, explosions, fires, lightning,

Acts of God or the public enemy,

breakdown of facilities or machinery,

what ever occurring, any cause over

which the affected party has no

reasonable control

No specific provisions on suspension

and force majeure

Temporary suspension because of (a)

force majeure; (b) disruption; (c)

environment capacity

Force Majeure includes wars, civil

disturbance, insurrections, epidemics,

earthquake, flood, fires, and other

natural disaster out of human control

Disruption includes blockage,

stoppage, industrial dispute,

occurrence of regulations hampering

mining activities

Suspension shall not decrease the

period of IUP

Suspension because of force majeure

releasing IUP holder from any of its

obligation in accordance with the

prevailing laws

Suspension because of disruption

doesn’t not release IUP holder from

financial, environment management

and health and safety requirements

SUSPENSION OF OPERATION

& FORCE MAJEURE


International Arbitration

or Domestic Arbitration

forums

State Administrative

Court

State Administrative

Court

SETTLEMENT OF DISPUTES


Contractor to promote

and support

development of regional

infrastructure

No specific stipulation IUP holder to conduct

corporate social

responsibility

CORPORATE SOCIAL RESPONSIBILITY


Gradually starting from the 5th Operating

Period at least ≥51% of issued shares

shall be offered and purchased by

Indonesian Participant

Indonesian Participant defined as (a)

Government of Indonesia; or (b)

Indonesian nationals; or (c) Indonesian

companies controlled by Indonesians

No divestment stipulation since it is

intended to be owned and controlled by

Indonesian nationals

Foreign Capital holding IUP and IUPK

after 5 years production shall divest their

shares until at least 51% of the shares

then owned by Indonesian participant

Indonesian participant defined as

Indonesian Government, Provincial

Governments, Regencies, State Owned

Enterprises (BUMN), Regional

Government Owned Enterprises (BUMD)

or national business entities

The Government of Indonesia is in the

first priority, followed by Regional

Governments (Provinces or Regencies)

If no one of the above interested, shall

be offered to BUMN and BUMD through

auction

If no BUMN or BUMN interested, shall be

offered to national business entities

through auction

DIVESTMENT


Parties shall consult

each other in revising

certain provisions of the

contract considering

relevant circumstances

relating to the condition

of the contract

Consultation shall be

conducted in good faith

Any amendment to the

contract shall be based

on mutual agreement of

the parties

Failure to agree doesn’t

constitute breach of

contract

Amendment to the

provisions of KP

conducted in accordance

with the prevailing laws

and regulations

Amendment to IUP

provisions conducted in

accordance with the

prevailing laws and

regulations

AMENDMENT TO MINING RIGHT

PROVISIONS


CCOW/COW can be

assigned to its affiliates

by notification to the

Government

Assignment to non-

affiliates shall be

approved by the

Government

KP can be transferred

upon approval of the

Minister/Governor/Rege

nt in accordance with

their respective authority

IUP cannot be

assigned/transferred to

any other parties

ASSIGNMENT


Contractor shall be fully

responsible for financing

the project and maintain

sufficient capital to carry

out obligation under the

contract

KP holder shall be fully





contract

IUP shall be fully





contract

FINANCING


Transfer of shares in

CCOW/COW holders

shall upon approval from

the Government (certain

generation of

CCOW/COW)

Not regulated (in some

KPs it is required to

obtain prior approval

from the authority

issuing the KP

Transfer of ownership

and/or shares can be

conducted only after

having minimum 2

potentials within

Exploration period

TRANSFER OF SHARES

THANK YOU

Adri Kurnia Ibnu

[email protected]


COAL CONTRACT OF WORK, Legal Status, CONTRACT ......IUP/KP is grantedby the Government authority...

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Transcript of COAL CONTRACT OF WORK, Legal Status, CONTRACT ......IUP/KP is grantedby the Government authority...