Client Newsflash

SUPREME COURT ANNULS MEMR No. 7/2012: IMPLICATIONS FOR DOMESTIC MINERAL PROCESSING AND REFINING

Indonesia’s Supreme Court recently published Decision No. 13 P/HUM/2012, dated April 3, 2013, (“Decision”), ordering the Minister of Energy and Mineral Resources (“MEMR”) to revoke MEMR Regulation No. 7 of 2012 regarding Increasing the Added Value of Minerals through Processing and Refining Activities (“MEMR No. 7/2012” or “Regulation”). The Court annulled specific provisions of the Regulation in two separate decisions in 2012,¹ but now it must be revoked in its entirety.

The Court annulled the Regulation on the basis that it was not in line with Law Number 4 of 2009 on Mineral and Coal Mining (“Mining Law”), particularly with respect to the commencement of the raw mineral export ban (May 6, 2012), which was deemed to violate Article 170 of the Mining Law, which requires that minerals be refined domestically no later than January 2014.

As a result of the Decision, the Regulation is null and void, along with its amendments (MEMR Reg. No. 11/2012 and Reg. No. 20/2013) and annexes, meaning there are no longer any minimum legal standards for purification and processing.

Nevertheless, mining companies (both IUP holders and Contract of Work companies in the
production phase) still have a legal obligation under the Mining Law to “add value” to mining products domestically by January 12, 2014.

Pairing with the Regulation, the Ministers of Trade and Finance had issued companion regulations² to MEMR No. 7/2012 relating to the authorization and taxation of raw mineral exports. Those regulations were not annulled by the Court, but the provisions of MEMR No. 11/2012 authorizing mining companies to continue exporting subject to certain recommendations and approvals have been stricken. As a result, it is no longer clear whether mining companies can continue to export unprocessed minerals after January 12, 2014.

We believe that export approvals that have already been granted will be allowed to proceed as planned, and Contract of Work companies may receive additional time to complete construction of processing plants, subject to MEMR approval of plant feasibility study reports and the ongoing renegotiation of particular provisions in the Contracts of Work.

Considering the needs of the mining industry to carry on production in spite of the imminent arrival of the domestic processing deadline, and the dramatic impact suspension of business would have on employees and the communities surrounding mining areas, it is anticipated that the Government will issue a new regulation soon, which may extend raw minerals export up to 2017 for Contract of Work

¹Supreme Court Decision No. 09 P/HUM/2012 and Decision No. 10 P/HUM/2012, both awarded on September 12, 2012.
The cases were brought by the Indonesian Nickel Association and the Association of Indonesian Regency Governments,
respectively.

²Minister of Trade Regulation No. 29/M-DAG/PER/5/2012, Minister of Trade Regulation No. 33/M-DAG/PER/5/2012,
Minister of Trade Circular No. 04/M-DAG/ED/12/2013, and Minister of Finance Regulation No. 75/PMK.11/2012.

companies that meet requirements and demonstrate progress toward building processing and refining facilities.

December 23, 2013
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA


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The foregoing material is the property of AKSET Law and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor should 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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