Client Newsflash

Government Requires Construction Plan and Guarantee Funds in Order to Export Unrefined Metal Minerals

On April 17, 2014, the Minister of Energy and Mineral Resources (“MEMR”) issued Regulation No. 11 of 2014 on Procedures and Requirements for Granting Recommendations for Overseas Sales of Processed and Refined Mineral Products (“Regulation”) to implement Government Regulation No. 1 of 2014 and MEMR Regulation No. 1/2014 provisions on exporting mineral mining products.

The most powerful aspect of the Regulation is that it makes Export Approval recommendations for partially processed metal minerals¹ contingent upon applicants taking concrete action toward developing domestic refining facilities, including depositing funds as a “guarantee of seriousness” to follow through on smelter construction. It also reaffirms that partially processed metal minerals can only be exported until January 12, 2017, after which all metal minerals must be refined to meet legal purity standards.

♦ Obligated Parties and Mineral Products

All companies that intend to export mineral mining products must obtain recognition as a Registered Exporter (Exportir Terdaftar – ET) from the Ministry of Trade (“MOT”) and submit their shipments for survey by a  licensed surveyor (see MEMR 1/2014). For companies that are allowed to export “processed” (i.e., not refined to stipulated standards) metal minerals (concentrates of copper, iron, tin, manganese, lead, and zinc) and byproducts (anode slime and copper telluride), Export Approval (Persetujuan Export – PE) from the MOT is  also required for each proposed shipment. Export Approval is contingent upon a recommendation from the MEMR, while a recommendation for ET status is required from the institution that issued the exporter’s business license (generally, MEMR, except for refining companies holding an Industrial Business License (IUI) from the Ministry of Industry (“MOI”)²).

♦ Registered Exporter

To obtain a recommendation for Registered Exporter status, applicants³ must apply to the Director General of  Minerals and Coal (“DGMC”) with copies of the clear and clean certificate, surveyor’s report, purchase agreement with overseas buyer, and other relevant documents. Applicants intending to export “processed” metal minerals and byproducts must also submit a statement certifying their intention to construct a domestic refining facility and a copy of the construction cooperation agreement if the smelter will be built in partnership with other parties.

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♦ Export Approval

To obtain a recommendation for Export Approval for “processed” metal minerals and byproducts, applicants⁴ must apply to the DGMC with copies of Registered Exporter status, approved plan for construction of a domestic refining facility, proof of deposit of a “seriousness guarantee” to construct the refining facility, environmental performance documents (e.g., environmental compliance, air and water quality tests, reclamation plan, and reclamation guarantee), proof of payment of Non-Tax State Revenue (PNBP), annual work and budget plan (RKAB), and specific information on the intended export.

Export Approval recommendations are valid for six months and can be extended for six months at a time.

♦ Approval of Smelter Construction Plan

In order to obtain a recommendation for Export Approval , holders of Production Operation IUP, Production Operation specifically for Processing and/or Refining, Contract of Work and Industrial Business License must submit their domestic smelting facility construction plan for evaluation by a technical team of the DGMC. Without an approved construction plan, the applicant cannot obtain Export Approval, and to extend a valid Export Approval recommendation beyond the initial six months period, the DGMC must be satisfied with the applicant’s environmental performance and progress in realizing the construction plan. Progress will be reviewed every six months.

♦ Seriousness Guarantee (and release)

To obtain a recommendation for Export Approval, holders of Production Operation IUP, Production Operation  IUP specifically for Processing and/or Refining, and Contract of Work must deposit funds into an escrow account at a State-owned bank as a “guarantee of seriousness” to build a domestic refining facility. The guarantee funds are calculated as 5% of the total investment (if new) or of the residual unrealized investment value (if the project is already underway). The funds may be released in annual increments in accordance with  the progress of construction, but only if progress meets at least 60% of targets every 6 months. Repeated failure to meet construction targets can result in the government appropriating the guarantee funds for the State Treasury.

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Disclaimer:
The foregoing material is the property of AKSET and may not be used by any other party without prior written consent. The information here in is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.


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