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DIRECTORATE GENERAL MINERAL AND COAL MINISTRY OF ENERGY AND MINERAL RESOURCES Ritz Carlton Hotel, November 28 th, 2014 GOVERNANCE IN MINERAL AND COAL MINING.

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Presentation on theme: "DIRECTORATE GENERAL MINERAL AND COAL MINISTRY OF ENERGY AND MINERAL RESOURCES Ritz Carlton Hotel, November 28 th, 2014 GOVERNANCE IN MINERAL AND COAL MINING."— Presentation transcript:

1 DIRECTORATE GENERAL MINERAL AND COAL MINISTRY OF ENERGY AND MINERAL RESOURCES Ritz Carlton Hotel, November 28 th, 2014 GOVERNANCE IN MINERAL AND COAL MINING IN INDONESIA Dr. R. Sukhyar (Director General of Mineral and Coal) Panelist on Launching of Regional Framework on Extractive Industries Government

2 OUTLINE I. BACKGROUND II. GOVERNANCE CONCEPT IN MINERAL RESOURCES DEVELOPMENT III. CURRENT CONDITION IV. INDONESIAN MINING POLICY V. INVESTMENT OPPORTUNITY VI. CLOSING REMARKS 2

3 BACKGROUND I.BACKGROUND 3

4 CONSTITUTION OF THE REPUBLIC OF INDONESIA IN1945 ARTICLE 33 PARAGRAPH (3): Land and water and the natural riches contained therein controlled by the state and used for the people's welfare.

5 Policy setting Regulating Licensing Supervising Overseeing and monitoring In the context with the execution of mineral right of the State, the Government has functions as follows GOVERNMENT FUNCTION

6 Shifting of Paradigm Development of Natural Resources Old ParadigmNew Paradigm Exploitative, Resources for Revenue Resources for Sustainable Development: pro growth, pro job, pro poor, pro environtment Resource Management 6 Demand Driven

7 7 Sumber : Suslick & Machado, 2001; Shields & Solar, 2006) MINERAL ISSUES, EVOLUTION PRECESS AND CONCERN ON SUSTAINABLE DEVELOPMENT “Mining activity must be in line with sustainable development principle” I. BACKGROUND (2)

8 GOVERNANCE CONCEPT AND STAKEHOLDERS IN MINING II.GOVERNANCE CONCEPT AND STAKEHOLDERS IN MINING 8

9 9 CONCEPT OF GOVERNANCE II. CONCEPT OF GOVERNANCE (1) Governance in mineral resources development is defined as a system operating in accordance to the effective and efficient policy, law and regulation which inter-connects stakeholders with different functions for the benefit of people’s prosperity at large. Every stakeholder must act and perform its function in accordance to the principles of transparency, responsibility, accountability and fairness.

10 10 Oil and Gas Company Company InvestmentBoardInvestmentBoard MDefenceMDefence MTransportMTransport PolicePolice MForestMForest MJustice and Law MJustice NuclearAgencyNuclearAgency MEMR AS PRINCIPAL OF MINING LICENSE MPublic Worker Worker MTradeMTrade MWorkerMWorker GovernorGovernor Ministry of Communication Communication MFinanceMFinance RegentRegent MSpetialPlanningMSpetialPlanning Continuous Improvement if MEMR as Principle of Mining License: 1. Streamlining approvals 2.Strong coordination among agencies, government up hold the MEMR as the principal 3.Simplification of procedures in Bureaucracy. 4.Government effort for simplification of the mining license 5.Increase entrepreneur’s awareness through a variety of regulations MINING STAKEHOLDER IN INDONESIA

11 11 Resource development is designed to empowering local community and providing a fair return to community based on principle:  Equitable  Efficient  Sustainable  Predictable  Tranparent II. CONCEPT OF GOVERNANCE (2)

12 III.CURRENT CONDITIONS 12

13 13 Demand for energy, materials, water and other key resources demand is likely to increase rapidly Indonesia today……and in 2030 Source: McKinsey Global Institute, INDONESIAN OUTLOOK

14 14 Source : Geology Agency, MEMR, 2013 Ferro and Associates : Fe, Nickel, Cobalt, Chromit, Mangan, Molibdenum, Titanium Precious Metal : Gold, Silver, Platinum Base Metal : Zinc, Cupper, Tin, Lead, Mercury Light and Rare metal : Bauxite, Monasit Ferro and Associates : Fe, Nickel, Cobalt, Chromit, Mangan, Molibdenum, Titanium Precious Metal : Gold, Silver, Platinum Base Metal : Zinc, Cupper, Tin, Lead, Mercury Light and Rare metal : Bauxite, Monasit 3.2 MINERAL RESOURCES AND RESERVE

15 15 RESOURCES : Billion Ton RESERVES : 31.4 Billion Ton Very High (> kal/gr) Low (< kal/gr) High ( kal/gr) Medium ( kal/gr) Source : Geology Agency, MEMR, COAL RESOURCES AND RESERVE

16 INDONESIAN COAL AND PRODUCTION RANK NOCOMMODITYRESERVEPRODUCTIONLOCATIONWORLD RANK (PRODUCTION) 1Coal31,4 Billion Ton421 Million TonSumatera, Kalimantan6th 2Tin801 Million Ton88 Thousand TonSumatera2nd 3Nickel1,168 Million Ton60 Million TonSulawesi, Maluku,Sumatera, Papua 2nd 4Copper (Metal)28 Million Ton450 Thousand TonPapua, Maluku, Nusa Tenggara5th 5Bauxite583 Million Ton56 Million TonKalimantan5th 6Gold (Metal)0.003 Million Ton59 Metric TonKalimantan, Sumatera, Maluku, Papua 7th Indonesia has a world rank mineral and energy resources, that can be used to create benefit in the form of investment opportunity, job, education, welfare, etc

17 17 Note: *) : - Realization up to Semester 1 st, Realization for Nickel Ore and Bauxite on January Mineral production Plan for 2015 already include metals as refining and processing results **) : Realization of Coal Production until the end of October COAL AND MINERAL PRODUCTION ( )

18 18 TYPEIUPCoWCCoW Landrent/Deadrent 1, 2, or 4 USD/ha based on phase operation 2 – 4 USD/Ha (prevailing)2 - 4 USD/Ha (prevailing) Royalty Open pit : 3,5, or 7% based on calorie Underground : 2, 4, 6% based on calorie Metals vary from 1-4% 3- 5 % (prevailing)13,5 % (naildown) Corporate Tax 25%25-45% (naildown) Note : Prevailing based on Government Regulation No. 9/2012 Naildown based on Contract CoW : Contract of Work (KK) CCoW : Coal Contract of Work (PKP2B) TAX/NON TAX OBLIGATION TARIFF 3.6 TYPE OF STATE REVENUE

19 CONTRIBUTION OF MINING SUB SECTOR TO NATIONAL DEVELOPMENT STATE REVENUE INVESTMENT LOCAL EMPLOYMENT COMMUNITY DEVELOPMENT MINING SUB SECTOR MINING STILL AS ECONOMIC PRIMEMOVER

20 V. INDONESIAN MINING POLICY 20

21 21 - To determine - To determine policies, guidelines, standards, procedures and criteria - To supervise implementation of autonomy policy - To manage Mineral Resources - To develop and arrange internasional cooperation/aggrement REPUBLIC OF INDONESIA GOVERNMENT PROVINCE - To provide on supporting development and and utilization of mineral resources -To manage mineral resources across regency, 4 to 12 nautical miles, and that is not implemented by the County / City. - To conduct training and research on mining REGENCY/CITY Regulating, Licensing, Supervising, controlling of Mining Activity To manage mineral resources in regency/city ECONOMY ACTORS DECONCENTRATION ECONOMIC RIGHT MINING RIGHT MINERAL RIGHT Preamble and Article 33 of the Indonesia’s 1945 Constitution Related Law and regulations: Law No 32/2004; Law 4/2009, etc. POWER FROM PEOPLE DECENTRALIZATION REGIONAL REGULATION 5.1 GOVERNMENT AUTHORITIES OF MINERAL AND COAL MINING

22 22 1. Article 33 Indonesia Constitution 1945: Verse (1) The economy shall be organized as a common endeavour based upon the principle of the family system. Verse (2) Branches of production which are important for the State and which affect the life of most people shall be controlled by the State.\ Ayat (3) Land and water and the natural riches contained therein shall be controlled by the State and shall be made use of for the people welfare. 2. Article 169 Law No 4 Year 2009: a. CoW and CCoW thhat already exist prior to the effectiveness of this Law shall remain valid until the contracts/agreements expire. b. The terms that are stated by articles of CoW adn CCoW as intended by point (a) shall be adjusted at the latest 1 (one) year of the promulgation of this Law, with the exception of state revenue. c. Exception of state revenues as intended by point (b) shall be an effort to increase state revenue. Elucidation of Article 169 (b) : All articles that are contained in CoW and CCoW must be adjusted to the Law. 5.2 LEGAL STANDING

23 23 SUBSTANCETERM 1.Government Position Mining permission given through tender by local government after area designated by Minister 2.Business Actor Position Business entities is under the control of the government, omitting mining contract system. 3.Enterprise: FormMining License (IUP, IPR & IUPK) (Contract of Work and CCoW- Coall contract to be Licence after contract ends). Tenure: operation period 20 years (can be extended 2 x 10 years) Divestment obligation After 5 years of production, Minimum required to divest 51% (integrated smelter 40% and undergroung mining 30%) Area For pre-production stage : IUP Metallic Mineral max ha, (Foreign Enterprise, min. Auction ha) cat: PP 28/2013 minimal lelang PMA ha IUP Non-Metallic Mineral Max ha IUP Coal max ha (Foreign Enterprise, min. Auction ha), IUP Rocks max ha SUBSTANCETERM 3.Enterprise (cont)): Area For production stage: IUP Metallic Mineral max ha, (Foreign Enterprise, min. Auction ha) IUP Non-Metallic Mineral max ha IUP Coal max ha, (Foreign Enterprise, min. Auction ha) IUP Rocks max ha Processing & RefiningRequired 4.Resource Management Must manage properly Increased value added in the country Prioritization of Domestic Needs 5.Sanction to the licensor Sanction available 6.Regional authority 7.Environment Protection 8.CSR, Right of community Reduced, the Minister set working area 5.4 MINING ENTERPRISE REGULATION

24 GOVERNANCE IN MINING (LAW NO 4/20009) 1. GOOD GOVERNMENT GOVERNANCE -Clarity in power and authority division between the national government and regional government either province and regency/mayor -Open system of cadastre and tenament -Transparant resource management and open mining and geology data -Fair and transparent licensing system -Put sanction to the authorities who do not comply the the law and regulation -Supervise, oversee and monitoring performance of local government in mining -Supervise, oversee and minitor mining companies -Provide guidance to people’s mining 2. GOOD CORPORATE GOVERNANCE -Comply to law and regulation, and good mining practices -CSR and community development -Apply the use of local content -Regular reporting -Protect environment, environment assessment, land reclamation and post mining -Provide public, employee and installation safety and health -Conservation -Value added

25 25 SINKRONIZATION OF CENTRAL AND LOCAL GOVERNMENT RENEGOTIATING OF CONTRACT (CoW, CCoW) VALUE ADDED/ DOWN STREAM PROCESSING MINING LICENSE SIMPLIFICATION OPTIMALIZATION OF STATE REVENUE 5.5 GOVERNMENT REFORM (NAWA CITA) OF JOKOWI-JK

26 MINING POLICY DIRECTION POLICY DIRECTION Provide certainty and transparency in the activities of mining (Mining Law supporting regulations, sanctions violations, etc.) Implement fulfillment priority of coal for domestic needs To encourage the increase of investment and revenue To encourage the development of value added products of mining commodity (eg processing, refining, local content, local expenditure, labor and CSR) 6 To maintain environmental sustainability through environmental management and monitoring (including reclamation and post-mining) To implement supervision and guidance

27 1.Ore / raw material can not be exported 2.Holders of IUP Operation Production of mineral (metal, non-metal, and rocks) may export a certain amount of processing product that have met the minimum limit processing. 3.Holders of Contract of Works who have been doing refining works can sell abroad a number of its processing products. 4.Processing products of metallic mineral that can still be sold abroad, namely copper concentrates, iron concentrates, iron sand concentrate / pellets, manganese concentrate, lead concentrate and zinc concentrate. However, these kind of commoditities can only be sold abroad until refining facility is completed - no later than three (3) years from the promulgation of this Regulation. 5.Minimum quality of processing and refining has been actively consulted with universities, research institutions, and business associations, as well as relevant ministries and agencies. The minimum quality has been written in the Minister of Energy and Mineral Resources No. 1 of 2014 on Added Value Through Mineral Processing and Refining Mineral in the country. 6.Other mineral commodities, such as: tin, nickel, bauxite, gold and silver can only be sold abroad after the refining. It should be born in mind that those minerals have been refined well before the Law. 4 of 2009 issuance. 5.7 MINERAL POLICY AFTER GOVERNMENT REGULATION 1/

28 28 1. Products resulting from PROCESSING METALLIC MINERAL that can be exported are: copper concentrate, iron concentrate, iron sand concentrate/pellet, manganese concentrate,lead concentarte and zinc concentrate. 2. Metallic mineral commodity such as tin, nickel, bauxite, gold, silver, and chromium ONLY can be exported after HAS BEEN REFINED. 3. Regulate minimum quality of processing and refining (Attachment 1 : Metallic Mineral Commodity, Attachment 2 : Non-metallic Mineral Commodity, Attachment 3 : Aggregate/Stone Commodity). 4. Contract of Work Holders, Metallic Mining Licence Holders which are in the production stage, after 3 (three) year period since issuance of this Minister Decree, can only export products that have been refined in accordance with minimum quality of refining as stated in this Minister Decree. 5.8 MINISTER of EMR DECREE NO.1 YEAR 2014

29 29 Beneficiation policy: without more downstream activities, Indonesia will miss the opportunity to increase employment and profit margins on the value chain because of the absence of downstream processing industries. Concentrate Anodes Cathodes Various Copper Iron ore Ore dressing Agglomeration Iron making Steelmaking casting Hot forming Cold forming Finished product Applications Iron steel Nickel oreNickel matte, Ferronickel High grade nickel products Nickel Downstream Smelting non-existing industry Coal Upgrading Active carbon Coking coal Gasification Liquefaction Conversion High-rank coal Year 2014 Due date for adjustment to minimum beneficiation requirement 5.9 MINERAL AND COAL DOWNSTREAM

30 VI. ON GOING ACTIONS FOR IMPROVING MINING GOVERNANCE 30

31 31 1.Renegotiation of Mining Contract 2.Restructurisation of IUP 3.Encouraging downstream processing and refinery 4.Optimazing state revenue 5.Establishment of Mining Area 6.1 ON GOING ACTIONS MANDATED BY MINING LAW No 4/2009

32 DEVELOPMENT OF MINERBA ONE MAP INDONESIA (MOMI) 1. NPWP 2. DATA PRODUKSI DAN PENJUALAN 3. PNBP MINERBA ONE MAP INDONESIA 1. NPWP 2. DATA PRODUKSI DAN PENJUALAN 3. PNBP 4. DATA JAMREK DAN PASCATAMBANG 5. REKOM ET/SPE 1. NPWP 2. DATA PRODUKSI DAN PENJUALAN NPWP 1.TERMINAL KHUSUS 2.NPWP 3.REKOM ET 4.PENJUALAN REKOMENDASI ET/SPE 1. NPWP 2. REKOM ET *) IDENTITAS TUNGGAL UNTUK SUATU WILAYAH IUP (WIUP) TERDIRI DARI 16 DIGIT YANG DIGUNAKAN SEBAGAI KODE ACUAN SUATU WIUP DALAM INTEGRASI DATA LINTAS SEKTORAL ANTAR K/L DITJEN DAGLU DITJEN PAJAK DITJEN BEA CUKAI DITJEN ANGGARAN KEMENHUT & LH PEMILIK IUP/KK/P KP2B DITJEN HUBLA PEMDA S I N G L E I D *) INFORMASI UTAMA : NAMA PERUSAHAAN, KABUPATEN/KOTA/PROVINSI, NOMOR DAN TAHUN SK, LUAS WILAYAH, TAHAPAN KEGIATAN, KOMODITAS, TANGGAL SK, STATUS C&C, NOMOR SERTIFIKAT C&C, SINGLE ID I N F O R M A S I T A M B A H A N M E T O D E P E N C A R I A N

33 33 NoInstansi Mining License LicenseApproval Recomendation/ Certification Total of Mining License based on level of Authority MandatoryOptionalMandatoryOptionalMandatoryOptional 1MEMR Authority MEMR Outhority + Others Ministry Other Ministry + Local Goverment TOTAL PROPOSED MEMR Authority MEMR Outhority + Others Ministry Other Ministry + Local Goverment NoInstansi Mining License LicenseApproval Recomendation/ Certification Total of Mining License based on level of Authority MandatoryOptionalMandatoryOptionalMandatoryOptional 1MEMR Authority MEMR Outhority + Others Ministry Other Ministry + Local Goverment TOTAL EXISTING Mining License and Approval Simplification 6.3 LICENSING REFORM

34 1.Increasing royalty tariff on mineral and coal: a.For Contract of Work (mineral) in according to Government Regulation No 9 Year 2012 from Copper 3,75%; Gold 1%; and Silver 1% increase become Copper 4%; Gold 3,75%; and Silver perak 3,25%. b.Royalty of nickel matte from 0,9% become 2% and nickel metal from 0,7% become 1,5%. Royalty tarrif will be increased according to increasing of metal price. c.Planning to increase Coal rolaty from Mining Licence Holder based on quality of products and type of operation: − Under ground minng: calory below k.kl/kg from 3% become 5%, quality – k.kal/kg from 5% become 7% dand quality above k.kal/kg from 7% become 9%. − Open pit mining: quality below k.kl/kg from 3% become 7%, quallity – k.kal/kg from 5% become 9% and quality above k.kal/kg from 7% become 13,5%. 2.Increasing mineral and coal value adde to increase price and royalty Effort to Increase Royalty 6.4 OPTIMALISATION OF STATE REVENUE (1)

35 1.Establishment of benchmark price for mineral and coal to avoid transfer of pricing. 2.Increasing cooperation with relevant institutions (Local Government, Government Auditor (BPKP), State Auditor (BPK), Ministry of Trade, Ministry of Finance) for: a.Auditing fulfillment of royalty payment b.Reconciliation of Production, Selling and Royalty c.Data and information sharing among relevant institutions regarding export data (Ministry of Trade, Ministry of Transportaion, and Custom). 3. Production and trading control: a.To maintain competitive price of commodity; b.Trading house for mineral and coal (exampel: Inatin for Tin). 4.Payment of royalty before shipment. 5.Integraton of data and informastion (Minerba One Map of Indonesia/MOMI). 6.Establishment of Export Port, mainly for Coal. 7.Improvement of Role of Surveyor. 8.Sanction for decreasing and delaying of royalty payment Governance Improvement 6.4 OPTIMALISATION OF STATE REVENUE (2)

36 36 1. Revision of Law No.4/2009 regarding mineral and coal mining adopting to Law No.23/2014 regarding loclal Government: - Governor Authority; - Regent and Mayor Authority 2. Minerba One Map Indonesia; 3. Revision of Government regulation No.9/2012 regarding royalty; 4. Empowering of Mining Inspector; 5. Increasing of Capacity Building Unit For Public Services (One Stop Services for Mining License, Online system for Royalty payment ) 6. Assignment of officer (Custom, Port Authority, Local Government, and MEMR) at designated port to ensure royalty payment before shipment (Real time monitoring for Trading Commodities) 7. Performing the function of Ministry of EMR as the Priniple in mining, meaning that related issues are coordinated and served by the ministry. 6.5 RECOMMENDATION

37 RECCOMMENDATION 1.Empowering and certifying competency of profession nad occupation in mining 2.Empowering and certifying mining services in mining 3.Socializing national standard of resource and reserve assessment, according to the international one. 4.Cooperation in resources development, establisment geology and mining data in border area 5.Enriching geology and mining, laws and regulation, investment data and information that has been developed by Asean Mineral and Coal Database. Indonesia is the focal point of mineral database system. 6.Cooperation in establishing single mining cadastre and mining tenament

38 VII. CLOSING REMARKS 38

39 39 1. Indonesia has mineral and coal resources and reserves that still prospective to be exploited in the future both in the upstream and the downstream industry as well. 2. Obligation to increase added value domestically and supporting regulations provide opportunity for establihsment of mineral processing and refining plant in Indonesia. 3. Indonesia still needs big investment to develop the potency on mineral and coal and encourages all private investment from ASEAN countries, especially for mineral and coal processing and refinery. VII. CLOSING REMARKS

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