The Change of Contract of Work and Coal Mining Concession Work Agreement into Mining Business Permit

A. Background

The Mining Business Permit (“Izin Usaha Pertambangan, “IUP”) is a permit for mining companies for Exploration activities and production operations in the context of mineral and/or coal exploitation, which was in effect prior to the issuance of Law Number 11 of 1967 on Basic Mining Provisions (“Law 11/1967”), where, in accordance with this law, investment is made possible in the mining sector through the concept of a Contract of Work (“Kontrak Karya, “KK”) and a Mining Concession Work Agreement Coal (“Perjanjian Karya Pengusahaan Pertambangan Batu Bara, “PKP2B”). With the implementation of the KK and PKP2B, any relationship that arises between the government and mining companies becomes a civil relationship. In 2009, Law Number 4 of 2009 on Mineral and Coal was issued but then later amended through Law Number 3 of 2020 on Amendments to Law Number 4 of 2009 on Mineral and Coal Mining (“Minerba Law”). These laws had an impact on the shift of the management for mining permits. The changes were made to support the mandate stipulated in Article 33 paragraph (3) of the 1945 Constitution of the Republic of Indonesia, in which the state can still control natural resources for the greatest prosperity of the people.

In the process of granting the permit, the Government is in a position of power over mining companies as the permit applicants because the Government has the authority to evaluate the performance of the mining companies. Thus, with the enactment of the Minerba Law, there has effectively been a regime change in the governance of the national mining industry.

B. IUP as a Substitute for KK and PKP2B

As a result of the enactment of the Minerba Law, the types of permits available to be granted for mining businesses have become simpler. As stipulated in Article 35 of the Minerba Law, mining businesses can be carried out in the form of three permits, among others (i) IUP, (ii) People’s Mining Permit (“Izin Pertambangan Rakyat, “IPR“), (iii) Special Mining Business Permit (“Izin Usaha Pertambangan Khusus, “IUPK“), (iv) IUPK as Continuation of Contract/Agreement Operation, (v) Rock Mining Permit (“Surat Izin Penambangan Batuan, “SIPB”), (vi) assignment permit, (vii) Transportation and Sales Permit, (viii) Mining Services Business License (“Izin Usaha Jasa Pertambangan, “IUJP”) , and (ix) IUP for Sales.

IUP is a permit to carry out a mining business, which is divided into the stages of Exploration activities and Production Operations in the context of mineral or coal exploitation. Furthermore, pursuant to Article 36 of the Minerba Law, Exploration stages include general investigation, exploration, and feasibility studies. Meanwhile, the Production Operation stages include construction, mining, processing and/or utilization, as well as transportation and sales activities. In the latest IUP scheme, applicants will be granted IUP for both stages. At the initial stage, applicants will only be granted an IUP Exploration to carry out the activities specifically mentioned above. After the exploration stage is completed, the IUP holder can apply for an upgrade in the IUP to the Production Operation stage to the Minister of Energy and Mineral Resources to be able to carry out activities that have economic value. In submitting this application, the IUP holder is requested to complete the specified documents as further regulated in the applicable laws and regulations.

More specifically, to obtain IUP, prospective applicants must apply for and/or participate in an auction scheme first, in order to obtain the determination of the Mining Business Permit Area (“Wilayah Izin Usaha Pertambangan, “WIUP”) then the IUP holder can apply for the necessary permits.

IUP Mining

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