MINING SECTOR DIVESTMENT RULES

Minister of Energy and Mineral Resources (“MOEMR”) issued Regulation No. 43 Year 2018 dated 21 September 2018 (“MOEMR 43/2018”) to amend the procedures of divestment and mechanism on determining the price of divested shares previously regulated under MOEMR 09/2017.   

The following are some amendments made by MOEMR 43/2018:

1. Divestment Mechanism

MOEMR 43/2018 stipulates that the divestment can be done by holder of IUP/IUPK Production by way of either issuing new shares to dilute the foreign shares, or transfer/sell the foreign existing shares.

2. Participants in the Divestment   

The following divestment procedure under MOEMR 09/2017 are still applicable with  additional rules stipulated in Article 9A of MOEMR 43/2018, namely, that if Government of Indonesia (“GOI”) do have interest in the divested shares offered, GOI is entitled to ask the provincial/local government, BUMN and/or BUMD to participate at the first stage to jointly obtain such divested shares:

- The shares must be firstly offered to the GOI. GOI has 90 calendar days to evaluate and negotiate the price as of the offer was made, then GOI has 30 calendar days to give a written response to accept or reject the offer.

- If GOI is not interested in such offered shares, then within 7 calendar days as of the rejection by GOI, the shares must be offered  to the provincial/municipal government (local governments) where the mining project is located and this local government has 30 calendar days to make a written response either to accept or reject the offer.

- If the local government rejects the offer, then within 7 calendar days as of such rejection, the shares must be offered to the state owned company (“BUMN”)/regional owned company (“BUMD”), and BUMN/BUMD shall have 30 calendar days to make a written response either to accept or reject the offer.

- If BUMN/BUMD is not interested in such offered shares, then within 7 calendar days as of the rejection, the shares must be offered to private Indonesian limited liability company; and the respond either to accept or reject the offer must be given within 30 calendar days.

In addition to the amendment above, MOEMR 43/2018 gives GOI (through MOEMR) the right to buy the divested shares through an SPV which is established by GOI together with the provincial/local government, BUMN and/or BUMD.

 

3. Price of the Divested Share

- Both MOEMR 09/2017 and MOEMR 43/2018 stipulate that the price of divested share offered to Indonesian Participant is counted based on a fair market value and pursuant to MOEMR 43/2018 the counting of such market value is based on methods of:

Discounted Cash Flow (DCF) by considering the economic benefits within the divestment implementation period until the expiry of the mining license; and/ or methods of market data benchmarking.

- The market value resulting from such calculation shall become the highest price for the holder of IUP/IUPK Production offering the divested shares to GOI, provincial or local governments, BUMN/BUMD or SPV or, become the base price for offering the divested shares to private Indonesian limited liability company under tender mechanism.

- Both MOEMR 09/2017 and MOEMR 43/2018 stipulate that the fair market value above shall not count the reserve of mineral and coal. MOEMR 43/2018 however, makes an exception by allowing to count mineral and coal reserves which are permitted to be mined during the period of the relevant licenses (IUP/IUPK Production).

 

4. Tender process by BUMN and/or BUMD is no longer required

- The requirement for making the offer of divested shares to BUMN and/or BUMD through a bid/tender process mechanism under MOEMR 09/2017 has been removed under MOEMR 43/2018.

-This rule of tender process however is still applicable for offering of the divested shares to private Indonesian limited liability company.  

- In relation to such of divestment offering, MOEMR 43/2018 expressly requires the holder of IUP/IUPK Production to provide access for conducting due diligence by Indonesian Parties. This requirement was not specifically stipulated under MOEMR 09/2017.

 

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