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18 October, 2018
On 25 September 2018, the Minister of Energy and Mineral Resources ("MEMR") enacted Regulation No. 43 of 2018 ("Regulation 43/2018") regarding Amendment to the MEMR Regulation No. 09 of 2017 regarding Procedures for Divestment of Shares and Pricing Mechanism for Divestment Shares in Mineral and Coal Mining Activities (“Regulation 9/2017”).
The overview of each amendments provided in Regulation 43/2018 are as below.
Issuance of New Shares as part of the Divestment Obligation
Under Regulation 43/2018, mining companies are now permitted to issue new shares or transfer or sell their existing shares, whether directly or indirectly, as part of their divestment obligation. This provision was not previously incorporated under Regulation 9/2017.
Divestment Procedures for Central Government and State/Regional-Owned Enterprises
As a rule of thumb, foreign mining companies are required to gradually divest at least 51% of their total shares to Indonesian parties in the following order:
- Central government (through the MEMR);
- Regional governments at the provincial or regional/municipal level;
- State-Owned Enterprises ("BUMN") and Regional-Owned Enterprises ("BUMD"); and
- National private businesses in the form of limited liability companies.
Regulation 43/2018 amends the divestment procedure applicable to the central government and BUMN/BUMD as elaborated below.
Price Negotiation with the Central Government
Once the foreign mining companies offer the divested shares to the central government, MEMR will evaluate and negotiate an asking price for any divested shares within 90 (ninety) days of receiving an offer. MEMR may also appoint an independent appraiser in order to evaluate the relevant offer price.
Previously under Regulation 9/2017, if there is a disagreement with respect to the price offered for the divestment shares, such price shall be calculated based on the result of an evaluation by the Government. This provision has now been revoked under Regulation 43/2018.
Shares Offering to the BUMN/BUMD
Under Regulation 43/2018:
- foreign mining companies are no longer required to conduct a tender in order to comply with the offering obligation to the BUMN/BUMD. As such, a BUMN and/or BUMD is no longer required to submit various supporting documents (e.g., price-bidding documents, deed of establishment, company profiles, etc.) with their statement of interest;
- offering of shares to BUMD now can only be conducted to BUMD which are established by provincial government or by regency/city government in location where the mining business activities are taking place; and
- if more than one BUMN/BUMD is interested in purchasing the shares, the MEMR will determine the amount of the divestment shares to be purchased by each BUMN/BUMD.
Cooperation with the Government
Through Regulation 43/2018, the Government also aims to increase the effectiveness of the divestment procedure. One of the ways in which the Government will do so is by permitting provincial/regional governments, regional/city governments and/or state-regional-owned enterprises to participate jointly in purchasing the divestment shares (the “Cooperation”). Once a Cooperation is established, such Cooperation will determine the divestment scheme and the composition of the divestment shares to be purchased. Regulation 43/2018 also permits the Cooperation to establish or appoint a special purpose vehicle to purchase the divestment shares.
This provision was not previously incorporated under Regulation 9/2017.
Due Diligence Process
In implementing the divestment obligation, mining companies are now required to provide access to Indonesian parties in order to conduct due diligence process. This provision was not previously stipulated under Regulation 9/2017. As it is common in transactions, due diligence would almost always be carried out.
The inclusion of this aspect in Regulation 43/2018 further strengthen this view.
Divested Shares Price
Regulation 43/2018 provides a more detailed elaboration on the pricing mechanism for the divestment shares. It is stipulated that the pricing for the divestment shares shall be calculated based on fair market value and such fair market value shall not consider the mineral or coal reserves except for reserves that can be mined within the validity period of the relevant mining license. Calculation of the fair market value shall be conducted by way of:
- discounted cash flow to economic benefits within the divestment implementation period until the expiry of the mining license; and/or
- market data benchmarking.
For further information, please contact:
Ipop Nawangsari, Partner, Ashurst
ratih.nawangsari@ashurst.com
