Abstract
The mandate from the Article 112 of the Law Number 4 of 2009 concerning Mining essentially oblige foreign investor with share ownership of more than 51% to divest his shares to Indonesian Participants. Foreign investors in the mineral and coal mining sector in Indonesia, such as in case of PT Freeport Indonesia Company, PT Newmont Nusa Tenggara and Churchill Mining, are not running their obligation to divest shares in a good manner. Several divestment cases occurred in Indonesia shows that the divestment regulation cannot provide order to the public. On the other hand, despite that the rules on divestment are not specifically regulated, however its provision is scattered in various rules and regulations in the divestment that has close connection with Investment. The initial penetration of foreign direct investment in Indonesia referred back to the juridical basis as of 1967, it is necessary to conduct further analysis on the regulation to understand the fault at law in arranging the divestment regulation in Indonesia currently.
Keyword: Divestment, Foreign, Mining, Regulation, Indonesia
Introduction
Law Number 4 of 2009 concerning Mining is the amendment made to the law in the mining business in Indonesia, it replaces the Law Number 11 of 1967 concerning Main Provisions of Mining which is considered as no longer appropriate to cover the necessity of Indonesia as a nation today.[1] The Law Number 4 of 2009 concerning Mining contains main ideas of handing over the control on the Mineral and coal as non-renewable resources to the state and to give the authority to develop and effectuate them to the central and regional Government along with the business actors. Then, the Government will further give opportunity to the business entities in the form of Indonesian legal entity, cooperatives, individual businesses, or local society to work on the mineral and coal according to the licenses they have obtained, in correspondence with the regional autonomy, given by either the central and/or regional Government based on their respective authority.[2]
The Indonesian government is putting endeavor to be in favor Indonesian participants in giving the said opportunity through the enactment of Article 112 of the Law Number 4 of 2009 concerning Mining, which oblige the foreign investors to divest their shares to Indonesian participants. The precise wordings of the said Article is that โAfter 5 (five) years of operation, business entities holding Mining Business Licenses (IUP) and Special Mining Business Licenses (IUPK), which shares are owned by foreign subject(s), have the obligation to divest its shares either to the central Government, regional governments, state-owned enterprises, regional-owned enterprises, or national private business entities.โ
Divestment of shares involve offers of total foreign shares to be sold to Indonesian participants.[3] In the mineral and coal sector, divestment of shares in Indonesia has never been running well, for instance in the case of Churcihll Mining[4], PT Freeport Indonesia,[5] and PT Newmont Nusa Tenggara.[6] Even though here, the law should have functioned as the tool to create order and justice.[7] In connection to the Divestment rules in Indonesia, it is apparent that the function to create order to the society has not yet been achieved.
Mining works are not easy to put into realization, since the activities in this sector need huge investments, high technologies, good managerial skills, as well as long duration of time to produce excellent mining materials.[8] There has been no specific rules regulating the divestment, however, the provisions are scattered into various rules and regulations.[9]
Divestment has close connection with the Investment.[10] Capital investment, or in other word, investment. The entrance of foreign direct investment in Indonesia is inseparable with the juridical ground rules of 1967 emerging after the independence of Indonesia. Regulation on the capital investment and other regulations are possible to come into existence with the balance deriving from several provision rules of divestment. Some provisions for the divestment in the national law of Indonesia is interesting to be taken as research, in order to seek way out from the vacuum of and/or fault at Divestment rules in Indonesia particularly in the mineral and coal sector. This article is using legal analysis approach against the rules and regulations precisely with respect to the Divestment in Indonesia.
- Analysis on the Divestment of Foreign Shares in the Indonesian National Law After 1967.
Divestment has a close connection with the investment/capital investment made by the foreigners to certain field of business. Along with investment/capital investment there will be decrease of capital/divestment to the business. In order to develop the economy, one of the ways taken by the Indonesian Government is to invest capital either using domestic or foreign sources. The entrance of foreign capital in Indonesia after the independence was dating back to 1967, and it has tight correlation with the divestment regulation.
It is a given that the Indonesian Government has no intention to be dependent to the foreign capital it has received. This intention elaborated in the basis of considerations in the drafting of the Law Number 1 of 1967 concerning the Foreign Capital Investment.[11] Then, the Article 27 Paragraph (1) of the Law Number 1 of 1967 concerning Foreign Capital Investment briefly explains that companies fully established by foreign capital has the obligation to give participation for domestic capital after certain duration of time. This indirectly means that foreign investor must reduce its number of shares to be owned by Indonesian subjects.
The intention of this regulation in the Article 27 Paragraph (1) of the Law Number 1 of 1967 concerning Foreign Capital Investment as affirmed in its Paragraph (2) is to encourage the foreign investors to divest their shares to enable the domestic investors to participate in their companies.
Divestment as referred in the Article 27 Paragraph (1) and (2) of the Law Number 1 of 1967 concerning the Foreign Capital Investment does not determine the minimum number of shares that must be sold. The absence of this regulation raise interpretation among the foreign investors that they are permitted to sell as least as possible. Besides the number of shares, the Law Number 1 of 1967 concerning the Foreign Capital Investment also has no elaboration on the duration of time for the performance of this obligation, whether at the time they obtain the Mining Business License (IUP) or at the time this license is expired.
The multi-interpretation on the regulation regarding the number of shares obliged to be divested by the foreign investors and the absence of duration of time for the divestment in the rules and regulations, particularly in the Law Number 1 of 1967 concerning the Foreign Capital Investment, will put domestic parties at lost as the receiving country for the capital. However, this does not applicable in absolute manner.
Article 3 Paragraph (2) and (3) of the Government Regulation Number 17 of 1992 concerning the Ownership of Shares in the Companies Established by Foreign Capital Investment, explained briefly that the capital for Indonesian participants might be increased to at least 20% (twenty percent) from the whole value of capital in the shares of the company within 10 (ten) years since the company starts its production. Then the capital in the number of shares for the Indonesian participants might be enhanced to be at least 51% (fifty one percent) from the whole value of capital in the shares of the company within the duration of 20 (twenty) years as of the company come into production. Such number of shares and duration applied to foreign capital investment companies with the capital value no lesser than US$ 250,000.00 (two hundred fifty thousand United States Dollar).
Besides the number and duration of the obligation, the foreign investors must at least own a capital of US$ 50,000,000.00 (fifty million United States Dollar), meanwhile the Indonesian participants may only buy ownership capital of 20% (twenty percent) against the whole capital of the company within the duration of 20 (twenty) years. This means, that Indonesian participants may only buy twenty percent of total capital in the companies with foreign capital investment of above fifty million United States Dollar.
The regulation on divestment in the Government Regulation Number 17 of 1992 concerning the Ownership of Shares in the Companies Established by Foreign Capital Investment has limited the capability of national participants to take over foreign companies, the regulation apparently gives special treatment to the foreign investors, taking into account that this regulation is protecting foreign investors with huge funds, to keep them invest their capital in Indonesia.
The issuance of the Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment which has replaced the Law Number 17 of 1992 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment is considered as more lenient to the national interest and it does not show selective manner in cutting the foreign investors who invest their capital in Indonesia.
The nationality nature in the Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment is showing selective manner in its several articles containing various policies. For instance, its Article 4 Paragraph (2) which briefly explains the requirement for the foreigners to hold the minimum ownership of US$ 50,000,000.00 (fifty million United States Dollar) in the capital investment, within the duration of 20 years, whereas no lesser than 51% (fifty one percent) from the paid-up capital of the company is obliged to be sold or transferred to Indonesian subjects.[12]
Besides, the Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment has added some provisions to the foreign companies fully incorporated by capital investment from foreign subjects with the minimum paid-up capital of US$ 2,000,000.00 (two million United States Dollar), within the duration of 20 (twenty) years as of the companies come into production, whereas no lesser than 51% (fifty one percent) from the paid-up capital of the company is obliged to be sold to Indonesian subjects.[13]
The spirit of nationality in the Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment led the government to require the foreign investors to just hold their shares within pre-determined amount of time before they are obliged to do divestment. It is different with the Government Regulation Number 20 of 1994 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment. After been running for a year, the spirit of nationality is requiring the foreign investors to divest their shares up to 51% to Indonesian participants within the duration of 20 years, however in fact, this does not change the status of the company. Article 7 Paragraph (2) of the Government Regulation Number 20 of 1994 concerning the Ownership of Shares in the Companies Established by Foreign Capital Investment explains that mere transfer of shares does not change the status of the company, this means that the ownership of the company is still fall under the power of the foreign investors who inject their capital in Indonesia.
The inconsistency of requirements in the nominal amount of shares and duration of allotted time for the divestment in the Government Regulation Number 17 of 1992, Number 50 of 1993, and Number 20 of 1994, all concerning Ownership of Shares in the Companies Established by Foreign Capital Investment are describing the dependency of government to the political condition and situation to the incumbent reign at respective time in drafting the regulations, and thus, this raise distrust from the foreign investors in doing their business and inject their capital in Indonesia.
Besides, those Government Regulations are in contrary with the higher hierarchy of law as referred in the Article 27 Paragraph (1) of the Law Number 1 of 1967 concerning Foreign Capital Investment.
โThe said company in the article 3, which capital is all deriving from foreign subjects, has the obligation to give opportunity to the domestic capital to effectively participate therein, after certain duration of time and in accordance to the balance determined by the Government.โ[14]
The word โwhich capital is allโ in the said phrase is referring to the requirements for the foreign capital investment companies to also divest capital other than the foreign investment made over the joint capital between the foreign and domestic capital as regulated in the Government Regulation Number 17 of 1992, Number 50 of 1993 and Number 20 of 1994, all concerning Ownership of Shares in the Companies Established by Foreign Capital Investment.
Provisions in the Article 27 Paragraph (1) of the Law Number 1 of 1967 concerning Foreign Capital Investment, particularly in the wordings โwhich capital is allโ may be interpreted as the chance for foreign subjects investing their capital in Indonesia to supersede the requirements made by the government, taking into account that there is a principle of law that higher hierarchy of law may supersede other laws below it (Lex Superior Derogat Legi Inferior Principle) and according to the order, the hierarchy of rules and regulations in Indonesia according to the provisions in the Law No. 12 of 2011 is: The 1945 Constitution of the Republic of Indonesia, Resolution of Peopleโs Consultative Assembly, Law/Government Regulation in lieu of Law, Government Regulation, Presidential Regulation, Provincial Regulation and Regency/City Regulation.
The chance for foreign capital investors to supersede several Government Regulations as said, does not applicable for those subjected to more specific provisions in the mineral and coal sector. It is to be noted that the foreign subjects investing in the mineral and coal sectors also have the obligation to divest their shares, and this applied to legal entity, it is required for them to have business entity in the form of legal entity in order to invest their capital in that sector.
The Article 27 Paragraph (1) of the Law Number 1 of 1967 concerning Foreign Capital Investment explains that companies in the form of Indonesian legal entity has close connection to the mining companies as referred to in the Article 12 Paragraph (1) of the Law Number 11 of 1967 concerning the Main Principles of Mining. It is explained therein that the power to conduct mining for the purpose of doing business in the field of extractive materials may be given to, among others, private legal entity established according to Indonesian laws and domiciled in Indonesia by proxy.
Mining business as regulated in the Article 3 of the Law Number 11 of 1967 concerning the Main Principles of Mining may be permitted by the Minister through proxy power to mining. This may be given to Cooperatives and also to private legal entities domiciled in Indonesia. Contract of Work made between the Government and foreign Investors are the manifestation of mandate from the proxy power to Mining. The State receives this mandate from its people, to do business on its natural resources, even in case it is managed by foreign subjects, thus there is agreement made by the State to regulate this matter.
The Presidential Decision Number 49 of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor (hereinafter referred to as โPresidential Decision Number 49 of 1981) is regulating the requirements on the partnership agreement between the coal mining companies as the original holder of the Proxy Power to Mining and the private parties as contractor, for the sake of doing mining business for 30 (thirty) years.
Towards the Contract of Work, there are several imposed obligations to the contractor, namely:
- Contractor is obliged to hand over at least 13.5% (thirteen point five percent) of its coal production to the Coal Mining State Owned- Enterprise in natural form. This submission is the substitute of customs supposed to be paid in exchange of exploration/exploitation.[15]
- The obligation of Contractor to pay taxes and levies to the Government are as follow: During the first 10 (ten) years as of the company come into production, the Contractor is imposed with company tax with the rate of as much as 35% (thirty five percent) from the taxable profit and starting from the 11th (eleventh) year onward, the Contractor shall be imposed with fixed company tax of as much as 45% (forty five percent) from the taxable profit, Local Development Customs (IPEDA), regional taxes and other customs that have obtained approval from the Central Government, general administration Customs for certain facilities or services given by the Government, Sales Tax, Duty Stamp Customs over loan agreement, excise on tobacco and liquor.[16]
- Contractor shall be obliged to submit tax over interest, dividend royalty (PPDR) and income taxes of its employee to the Government, the Contractor is also obliged to pay certain amount of fixed customs according to the total area of its mining.[17]
- Foreign contractor who invest capital must be in the form of legal entity incorporated based on Indonesian law and domiciled in Indonesia.[18]
- Contractor is obliged to offer its shares to the Government or Indonesian Citizen, after 4 (four) years since the company come into production, hence at the end of the 10th (tenth) year after the production has been started, at least 51% (fifty one percent) of its shares has been offered and bought by Indonesian subjects.[19]
- Contractor is obliged to prioritize the use of domestic production, domestic manpower, and services from Indonesia, as well as to take into account the policies from Indonesian Government in the Regional development within its business.[20]
The obligation for contractor to offer its shares to Indonesian participants, 4 (four) years after it has started the production phase, is an obligation of divestment against its foreign shares in the mineral and coal sector, particularly applied to the contractor holding Contract of Work.
Presidential Decision Number 21 of 1993 concerning the Main provisions of the Partnership Agreement in the Coal Mining Business between Public Company (PERSERO) PT Tambang Batubara Bukit Asam and Contractor Company, (hereinafter referred to as โPresidential Decision Number 21 of 1993โ). According to the Presidential Decision Number 21 of 1993, PT Tambang Batubara Bukit Asam as the holder of Proxy Power of Mining was holding an agreement with a contractor to conduct mining business of extractive coal.
In the Presidential Decision Number 21 of 1993, the provisions on the inclusion and development of national interest in the coal mining business is regulated under Article 8 and Article 9. In Article 8 Paragraph (2) it is regulated that contractor is obliged to offer its shares to Indonesian Participants, either the government, business entities, or Indonesian citizens, in accordance with the related provisions in the field of capital investment. This provision has a downside, it does not regulate on the exact percentage and required duration for the transfer/divestment of the shares as Presidential Decision Number 49 of 1981 does, then, in this provision, the contractor obligation is only as far as offering its shares to be divested from its ownership.
Presidential Decision Number 75 of 1996 concerning the Main Principles of Agreement in the Coal Mining Business (hereinafter referred to as the โPresidential Decision Number 75 of 1996โ) also has divestment provision in its sub-chapter of inclusion and development of national interest. In its Article 6, it is briefly explained that in order to make capital investment, Private Contractor must incorporate a legal entity based on Indonesian law, and if this Private Contractor is foreign subject, it must ascertain that its capital is not fully deriving from foreign sources, in case otherwise, then it must sell part of its shares to Indonesian citizens and/or legal entity, in accordance with the applicable rules and regulations.
The advantage from Presidential Decision Number 75 of 1996 is in the obligation for private contractor to sell part of its shares, however on the downside, this provision is only applied to fully-owned foreign companies, which shares are all held by either foreign citizens and/or legal entity, it shall not be applicable to foreign companies incorporated with joint funding between domestic and foreign capital, even though the business in the mining sector in Indonesia is dominated by joint venture companies. Other downside in the Presidential Decision Number 75 of 1996 is the absence of provisions regarding the number of shares and duration of time for the divestment.
The inconsistency in the Presidential Decision to determine the object obliged to be divested, the number of shares and the duration of time, is quite similar to what happened in the Government Regulation. This is the outcome from the absence of detailed and firmed provisions particularly towards the divestment, in the Law concerning Foreign Capital Investment and Law concerning Mineral and Coal Mining during the period of 1967. The incumbent reign of government has a broad chance to take over the ownership of foreign capital, however on the other hand, the uncertainty coming from the regulations in the receiving country of the foreign capital is declining the desire from the foreign subjects to invest their capital in Indonesia.
- Analysis on the Divestment Regulation for the Foreign Shares in Indonesian National Law After 2009.
The divestment/sale of shares in the field of capital investment after 2007 is regulated
under the issuance of Law Number 25 of 2007 concerning Capital Investment (hereinafter referred to as โLaw No. 25 of 2007โ), which unfortunately does not have specific obligations for the divestment/sale of foreign capital ownership in its articles to give more room of chance for the Indonesian participants. Article 7 of the Law Number 25 of 2007 concerning Capital Investment explains that, the Government shall not conduct any nationalization or take-over of the ownership rights on the capital investment, unless mandated by Law. Here, the government is firmly stated its intention to refrain from taking-over ownership capital in a company. Even though there is a mechanism of capital take-over through divestment/sale of shares to investors either from local or foreign sources.
The act mentioned in the previous paragraph is actually ambiguous and not absolute. It means that Government conduct in refraining from taking-over ownership right over capital investment does not applied entirely to all conditions, this act shall need requirement from the provisions of other Law for the Government to do so, a kind of intention or act that shall limit capital investment either from foreign or domestic sources.
Further, Article 8 of the Law Number 25 of 2007 concerning Capital Investment runs as follow:
โCapital investors may transfer their assets to the desired parties according to the provisions in the rules and regulations.โ
Transfer of share ownership in the Article 8 of the Law Number 25 of 2007 is referring to the authority given to the capital investors to freely manage their shares. Capital investors, either local or foreign subjects may transfer their assets on their own accord as long as it does not infringe the rules and regulations. The transfer as referred here, is intended both to give opportunity to national capital to raise and also to allow the foreign investors to come up with business strategies in the effort to seek the best profit in the receiving country of the capital. Merger, acquisition or divestment are all kind of ways to transfer company asset to other parties. Article 8 of Law No. 25 of 2007 does not explain on how the transfer of shares must be made, this, again, signifies the said downside.
Transfer of shares generally may be made by capital investors through divestment of its shares, as one of its business strategies to seek for profit, then, the divestment may also be made by the government to give the opportunity to national capital to raise, by obliging the foreign investor to divest its capital. Article 112 Paragraph (1) of the Law Number 4 of 2009 concerning Mining, mainly states that after 5 (five) years of production, business entities holding Mining Business Licenses (IUP) and Special Mining Business Licenses, which shares are owned by foreign subjects, must divest its shares to the central Government, regional governments, state-owned enterprises, regional-owned enterprises, or national private business entities.
Law Number 4 of 2009 concerning Mining is the Lex Specialis (specific regulation) from the Law Number 25 of 2007 concerning Capital Investment. Therefore, all capital owners in the mineral and coal sector must also comply to the Law Number 4 of 2009 concerning Mining along with its implementing regulations besides to the Law Number 25 of 2007 concerning Capital Investment.
Government Regulation Number 23 of 2010 concerning Implementation of Mineral and Coal Mining Business Activities (hereinafter referred to as โPP 23 of 2010โ), has finally been amended numerous times. Government Regulation Number 24 of 2012 concerning the Implementation of Mineral and Coal Mining Business Activities (hereinafter referred to as โPP 24 of 2012โ) has been through several amendment in its divestment regulation, particularly regarding the requirement of larger share ownership for Indonesian participants up to 51%.[21]
Such change has amended the content of Article 97 which stipulated that the holder of Mining Business Licenses (IUP) and Special Mining Business Licenses (IUPK) in the sense of foreign capital investment, has the obligation to gradually divest their shares 5 (five) years after coming into production, thus in the tenth year there will be no lesser than 51% (fifty percent) of shares under the ownership of the Indonesian participant. Then the next paragraph is explaining the minimum ownership of Indonesian participant must have each year after the end of fifth year of production, whereas Indonesian participant shall have no lesser than 20% (twenty percent) of shares in the sixth year, 30% (thirty percent) in the seventh year, 37% (thirty seven percent) in the eighth year, 44% (forty four percent) in the ninth year, and 51% (fifty one percent) in the tenth year, from the total number of shares.[22]
Then, in such divestment, the foreign shares must be firstly offered to the central Government, regional governments, state-owned enterprises, and regional-owned enterprises, before to the national private business entities, within the determined period of time and if the offering has not met the requirements, then it must be re-offered the next year.[23] The existence of offering in the next year may give broader opportunity to Indonesian participants and to let them prepare all necessary pre-requisites, either with respect to the capital or human resources.
Two years later, the Government Regulation Number 1 of 2014 concerning the Implementation of Mineral and Coal Mining Business Activities (hereinafter referred to as โPP 1 of 2014โ) has been issued. In the second amendment, there is no discussion regarding the divestment policy, thus in order to seek for divestment regulation, one still must have to see the previous regulation namely the Government Regulation Number 24 of 2012 concerning Implementation of Mineral and Coal Mining Business Activities.
Not long after, in 2017, there was an issuance of the Government Regulation Number 1 of 2017 concerning the Mineral and Coal Mining Business Activities (hereinafter referred to as โPP 1 of 2017โ). The government seemed to reduce its effort to give better chance to Indonesian participants in the divestment that has been regulated under the Article 97, it was not due to the annulment of regulation on the number of shares and duration of time required for the divestment, instead it was because of absence of opportunity for Indonesian participants to accept the offer the next year, hence, all Indonesian participants are only getting the chance within the same year and not for the next year.
Government Regulation Number 1 of 2017 has been refined further by the Government Regulation Number 8 of 2018 concerning the Fifth Amendment on the Government Regulation Number 23 of 2010 concerning the Implementation of Mineral and Coal Mining Business Activities. This amendment is more specific to the minister authority in determining the selling price for the coal used in the necessity for domestic interest.
Several Government Regulations related to the divestment in the sector of mineral and coal mining, have the downside of inconsistency and continuous change of number of shares and duration of time required for the divestment, within short range of time. This inconsistency shows the image of the political condition in the government, which may affect foreign investors to refrain from divesting their shares in time, and may become one of the factors impeding the divestment of foreign shares in the sector of mineral and coal mining to Indonesian participants.
Besides Government Regulations, divestment is also regulated under Minister Regulation Number 27 of 2013 concerning Procedure and Stipulation of Price in the Share Divestment for Mineral and coal Mining Business Activities (hereinafter referred to as โMinister Regulation Number 27 of 2013โ). In this Minister Regulation, there has been clear regulation on the procedure to divest, transfer the ownership of, stipulation of price for shares, and up to the administrative sanctions imposable to the offenders, Besides, the Minister Regulation Number 27 of 2013 has also been regulating procedures and stipulation of price for the divestment of shares applicable for the holder of Contract of Work and Work Agreement for Coal Mining Business.
Four years later, Indonesian Government is issuing the Minister Regulation Number 9 of 2017 concerning Procedure and Stipulation of Price in the Share Divestment for Mineral and coal Mining Business Activities (hereinafter referred to as โMinister Regulation Number 9 of 2017โ). This Minister Regulation has changed the procedures of share divestment and mechanism of price stipulation in the divestment from the previous regulation, it is considered as more detailed and clearer, however on the downside, it no longer obliged the price stipulation to be made by independent appraisal.
A year later, Minister Regulation Number 9 of 2017 then amended again by the issuance of the Minister Regulation Number 43 of 2018 concerning Procedure and Stipulation of Price in the Share Divestment for Mineral and coal Mining Business Activities (hereinafter referred to as โMinister Regulation Number 43 of 2018โ). Minister Regulation Number 43 of 2018 has additional of Article 4a which stipulated that share Divestment may be made through the issuance of new shares and/or transfer or sale of existing shares, either directly or indirectly. Minister Regulation Number 43 of 2018 is adding the easiness for the capital investors to divest their shares.
The large multitude of implementing regulations on divestment may confuse the investors and put them at loss when they invest their capital in certain receiving country. Regulation on divestment towards the holder of Contract of Work and Work Agreement for Coal Mining Business are stipulated in the provisions of the Contract. Article 169 point b of the Law Number 4 of 2009 concerning Mining explains that provisions stipulated in the articles of Contract of Work and Work Agreement for Coal Mining Business which have been existed before the Law Number 4 of 2009 concerning Mining entered into force, must be adjusted no later than 1 (one) year as of the enactment of the Law Number 4 of 2009 concerning Mining unless on the matter regarding state revenue.
Article 169 point b of the Law Number 4 of 2009 concerning Mining mandated that the provisions in either Contract of Work or Work Agreement for Coal Mining Business must be adjusted no later than one year after the Law Number 4 of 2009 concerning Mining has been issued. The downside of this adjustment as referred in the said article is the absence of detailed requirements on what are the aspects that must be adjusted and with respect to the divestment, there is no explanation on how much is the quantity of shares that must be divested from the foreign capital by the holder of Contract of Work or Work Agreement for Coal Mining Business to the Indonesian participants.
With regards to Contract of Work or Work Agreement for Coal Mining Business, Article 169 point b of the Law Number 4 of 2009 concerning Mining is clearly stating that Contract of Work shall be in force until its expiration. This provision is in contrary to the said mandate of this article.
There are several provisions necessary in the drafting of a contract, one of which is related to Divestment, nonetheless the obligation to adjust contract is in contrary to other responsibility to enact a contract up to its expiration. This shows the weak implementation of adjustment to the contract, one of which is related to the Divestment in the mining law in Indonesia and it also manifest the inconsistency and irresolute attitude from the government against the mineral and coal businessmen in obliging them to divest their shares to the Indonesian participants.
PT Freeport Indonesia and PT Newmont Nusa Tenggara are mining companies which entered Indonesia through Contract of Work. The divestment of the two companies are regulated under contracts made between the Indonesian Government and the Contractor of the mining business, either PT Newmont or PT Freeport. The number of shares obliged to be divested to Indonesian participants are varied, depends on the contract made by the respective mining company in Indonesia. Article 1338 of the Indonesian Civil Code of Conduct has regulated that all agreement made in valid manner shall be applicable as the law for the concluding parties.
Satjipto Raharjo explains on how the law should have been made, first, the style is supposedly firm and simple, second, the terms chosen are supposedly having absolute character instead of relative character, hence it will constrict possibilities for multi-interpretation or hypothetical interpretation, fourth, it is supposedly far from complicated, since it is made for everyone, do not immerse people in logical problems, it only need to merely reachable for common reasoning, fifth, main problems must not be biased with exceptions, limitations or modifications, unless it is utterly necessary, six, better to refrain from using argumentative reasoning, it is very dangerous to give detailed reason on regulated matters, since it opens the door to argumentation, seventh, all of those matters are supposedly put into thorough consideration, no need to be confused on the thoughts and sense of common justice or how things are naturally going, since a weak, unnecessary, and unfair type of law will cause collapse to the whole system of rules and regulations and undermine the prestige of a state.[24]
With respect to the Article 169 point a and Article 169 point b of the Law Number 4 of 2009 concerning Mining, the government are not supposedly choosing terms with absolute character, the absence of different interpretation or limitation to the main problems elaborated is biased by the existence of other articles, or in other words, all of such contents are supposedly put into thoughts, considered, and reviewed before being enacted, to prevent confusion from the foreign investors who divest their shares in Indonesia.
Then for the mineral and coal mining business in Indonesia after 2009, there is no requirement of contract of work, instead, it has licensing system, divestment in contract of work is complying to the provisions made between Indonesian government with the contractor holding the mineral and coal mining business in Indonesia, which have varying number of offered shares. Common people in Indonesia view that mining businesses are no longer in need of contract of work, it will need licenses instead, thus the people consider that the Indonesian government is uncapable of exercising economical sovereign against the foreign investors who invest their capital in Indonesia.
Mochtar Kusumaatmadja is also explaining that the law is functioned to generate order and justice. Public order may be attained if the law is giving certainty on why it is created.[25] In connection to the business world, order in the field of divestment may be attained if there is certainty on the purpose of the creation of divestment against the foreign capital investment in the mineral and coal mining sector in Indonesia, as stipulated in the rules and regulations.
This function of law to guarantee order and discipline is utterly important, to the extent that some people refers this function as the purpose of law. The purpose meant here, is the preserved and guaranteed condition of order (certainty) and discipline. Without order and discipline, it is impossible to have reasonable life. No person can do business and develop his talent without the existence of both certainty and order.[26]
Conclusion
There has been no rules and regulations specifically regulate divestment of foreign shares in Indonesia yet. Regulations on the divestment are scattered in various applicable rules and regulations either in capital investment or mineral or coal mining. Regulation on divestment of foreign capital in Indonesia has been started since the foreign capital investment entered Indonesia in 1967. In 1967, divestment is only regulated under foreign capital investment and there is no other regulation in the mining sector. It is different with 2009, divestment regulation is clearly elaborated in the Law Number 4 of 2009 concerning Mining as well as its implementing regulations. Divestment regulations after 1967 up to after 2009 in Indonesia are not consistent and may be changing within faster duration of time, some might need lesser than one year, this may put the foreign investors at lost and declining their interest to inject its capital in Indonesia. Aside from inconsistent, divestment regulations in Indonesia are also absence of details against the adjustment referred in the Article 169 point b of the Law Number 4 of 2009 concerning Mining. Divestment regulations for foreign shares in Indonesia, does not only applied to the foreign investors holding the licenses, it is also applicable to the holder of the Contract of Work/Agreement. The total number of shares obliged to be divested by the holder of Contract of Work/Agreement and the different number of divestment of shares in each company shall be regulated in the contract. Divestment regulations for foreign shares in Indonesia exists in the Law and its implementing regulations, however, it is also regulated under the Contract of Work made between the government of Indonesia and mining business Contractor in Indonesia
References
Law Number 4 of 2009 concerning Mining
Law Number 11 of 1967 concerning Main Provisions of Mining
Law Number 1 of 1967 concerning Foreign Capital Investment
Law Number 25 of 2007 concerning Capital Investment
Government Regulation Number 23 Of 2010 concerning Implementation of Mineral and Coal Mining Business Activities.
Government Regulation Number 24 Of 2012 concerning Implementation of Mineral and Coal Mining Business Activities.
Government Regulation Number 1 Of 2014 concerning Implementation of Mineral and Coal Mining Business Activities.
Government Regulation Number 1 Of 2017 concerning Implementation of Mineral and Coal Mining Business Activities.
Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment
Presidential Decision Number 49 of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor.
Department of Energy and Mineral Resources of the Republic of Indonesia, Press Release Number 23/HUMAS DESDM/2009, with regards to Arbitration Award concerning Divestment of Shares of PT Newmont Nusa Tenggara.
Erni Yoesry, โDivestasi PT. Freeport Indonesiaโ, Jurnal Hukum & Pembangunan 49 No. 1 (2019).
Jeef Madura, Introduction to Business, Fourth Edition, Thomson Higher Education, USA, 2007.
Mochtar Kusumaatmadja dan Arief Sidharta, Pengantar Ilmu Hukum Suatu Pengenalan Pertama Ruang lingkup belakunya Ilmu Hukum, Alumni, Bandung, 2000.
Nanik Trihastuti, Hukum Kontrak Karya Pola Kerjasama Pengusaha Pertambangan Indonesia, Setara Press, Malang, 2013.
Otje Salman dan Eddy Damian (editor), Konsep-konsep Hukum dalam Pembangunan: Kumpulan Karya Tulis Prof. Dr. Mochtar Kusumaatmadja, SH, LL.M, Alumni, Bandung, 2013.
Salim HS dan Erlies Septiana Nurbani, Edisi Revisi Hukum Divestasi di Indonesia Pasca Putusan Mahkamah Konstitusi RI Number 2/SKLN-X/2012, PT Raja Grafindo Persada, Jakarta, 2013.
Satjipto Rahardjo, Ilmu Hukum, PT Citra Aditya Bakti, Semarang, 2000.
[1] See Article 112 of the Law Number 4 of 2009 concerning Mining
[2] See Explanation in the Law Number 4 of 2009 concerning Mining
[3] Government Regulation Number 23 Of 2010 concerning Implementation of Mineral and Coal Mining Business Activities.
[4] Tempo, Sengketa Churcihll Mining vs Pemerintah, https://bisnis.tempo.co/read/412812/sengketa-churchill-vs-pemerintah-masuk-arbitrase.
[5]Erni Yoesry, โDivestasi PT. Freeport Indonesiaโ, Jurnal Hukum & Pembangunan 49 No. 1 (2019): 153-179
[6]Department of Energy and Mineral Resources of the Republic of Indonesia, Press Release Number 23/HUMAS DESDM/2009, with regards to Arbitration Award concerning Divestment of Shares of PT Newmont Nusa Tenggara.
[7]Otje Salman dan Eddy Damian (editor), Konsep-konsep Hukum dalam Pembangunan: Kumpulan Karya Tulis Prof. Dr. Mochtar Kusumaatmadja, SH, LL.M, Alumni, Bandung, (2013), p. 1
[8]Nanik Trihastuti, Hukum Kontrak Karya Pola Kerjasama Pengusaha Pertambangan Indonesia, Setara Press, Malang, (2013), p. 3.
[9] Salim HS dan Erlies Septiana Nurbani, Edisi Revisi Hukum Divestasi di Indonesia Pasca Putusan Mahkamah Konstitusi RI Number 2/SKLN-X/2012, PT. Raja Grafindo Persada, Jakarta, (2013), p 120.
[10] โA divestiture is the sale of an existing business by a ๏ฌrm. It is the reverse of investing in new assetsโ. Terdapat dalam Jeef Madura, Introduction to Business, Fourth Edition, Thomson Higher Education, USA, ( 2007), p. 656
[11] That in that regard, the principle to use self-capability as well as self-eligibility as the ground of development must not raise reticent to utilize potential of capital, technologies, and skills available from abroad, as long as all of them are truly dedicated for the interest of peopleโs economy without resulting into dependency to external support, this is contained in the Consideration of point e of the Law Number 1 of 1967 concerning Foreign Capital Investment
[12] See Article 4 Paragraph (2) of the Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment
[13] See Article 5 Paragraph (2) of the Government Regulation Number 50 of 1993 concerning Ownership of Shares in the Companies Established by Foreign Capital Investment
[14] Article 27 Paragraph (1) of the Law Number 1 of 1967 concerning Foreign Capital Investment
[15] See Article 2 of the Presidential Decision Number 49 of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor
[16] See Article 4 Paragraph (1) of the Presidential Decision Number 49 of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor
[17] See Article 4 Paragraph (2) and Paragraph (3) of the Presidential Decision Number 49 of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor
[18] See Article 12 Paragraph (1) of the Presidential Decision Number 49 of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor
[19] See Article 12 Paragraph (3) and in connection with Article 12 Paragraph (4) of the Presidential Decision Number 49 Of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor
[20] See Article 13 of the Presidential Decision Number 49 Of 1981 concerning the main Principles of Partnership Agreement in the Coal Mining Business between Coal Mining State Owner-Enterprise and Private Contractor
[21] Article 97 Paragraph (1) of the Government Regulation Number 24 of 2012 concerning the Implementation of Mineral and Coal Mining Business
[22] See Article 97 Paragraph (2) of the Government Regulation Number 24 of 2012 concerning the Implementation of Mineral and Coal Mining Business Activities
[23] See Article 97 Paragraph (3)-(8) of the Government Regulation Number 24 of 2012 concerning the Implementation of Mineral and Coal Mining Business Activities
[24] Satjipto Rahardjo, Ilmu Hukum, PT Citra Aditya Bakti, Semarang, (2000), p. 180
[25]Otje Salman dan Eddy Damian (editor), Konsep-konsep Hukum dalam Pembangunan: Kumpulan Karya Tulis Prof. Dr. Mochtar Kusumaatmadja, SH, LL.M, Alumni, Bandung, (2013), p. 1
[26] Mochtar Kusumaatmadja dan Arief Sidharta, Pengantar Ilmu Hukum Suatu Pengenalan Pertama Ruang lingkup belakunya Ilmu Hukum, Alumni, Bandung, (2000), p. 50
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