Framing Coal to be Legitimate I: A Historical Overview on Multi Regulation of Coal Mining Sector in Indonesia

Abstract

Positioning as one of important coal producers in Pacific market, Indonesia has been through several changing in both regimes and policies of coal governance. Since the very first of nation establishment, regulations have been made as essential tools to rule mining as well as coal in particular. Using historical overview, the regulatory framework on chronicle sequences of mining including coal in particular from 1960 to the present year is able to map. As a result, the making of mining policy is identified having both general and specific pattern. Generally, the changing of policy is always followed by shifting permit mechanism up to administrative dealings, which are adjusted with the ongoing political will. Instead, the distinctive design of mining regime is differ depending on the reigns that are in power. The shifting on mining authorization, permit scheme, investment, trading, and energy issue have been identified colouring the dynamic regulation of mining as well as coal.

Keywords: mining, coal, political will, dynamic regulation

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Working Paper Article 33 Indonesia
WP 13/2017
Framing Coal to be Legitimate I: A Historical Overview on Multi Regulation of Coal Mining Sector in
Indonesia
1 | P a g e
Working Paper Article 33 Indonesia may contain results, findings and/ or
recommendations based on research. This is disseminated to encourage wider and
deeper discussion and to open space for input and/ or opinion especially in terms of
policy issues that has been our primary concern. The contents of this Working Paper
may be changed, revised, and published in other different forms. However, this Working
Paper has been through several peer reviews thus qualified to be a reference.
How to cite this paper:
Purnamasari, Umi., Saputro, Putut., Damanik, Iqbal., Kanti., Ardhyanti, Ermy., and
Prakoso, Andika. (2017). Framing Coal to be Legitimate I: A Historical Overview on Multi
Regulation of Coal Mining Sector in Indonesia. (Working Paper Article 33 Indonesia WP
13/ 2017). Jakarta.

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GL O S SARY
Badan Usaha Milik Negara (BUMN) : State-owned enterprise
Badan Usaha Milik Daerah (BUMD) : Local State-owned enterprise
Bea Perolehan Atas Hak Tanah dan Bangunan : Value Added Tax on Goods and Services
(BPHTB)
Biaya Pokok Penyediaan (BPP) listrik : Electricity Cost of Supply
CnC : Clean and Clear
Dana Bagi Hasil (DBH) : Revenue-Sharing Fund
Dana Alokasi Umum (DAU) : General Allocation Fund
Dana Alokasi Khusus (DAK) : Special Allocation Fund
Dewan Perwakilan Rakyat (DPR) : House of Representative
Dewan Perwakilan Rakyat Daerah (DPRD) : Local House of Representative
GoI : Government of Indonesia
Instruksi Presiden (Inpres) : Presidential Instruction
IPP : Independent Power Producer
Izin Pertambangan Rakyat (IPR) : Community Mining License; valid
since 2010 after the establishment of UU
No. 4/ 2009
Izin Pinjam Pakai Kawasan Hutan (IPPKH) : Permit to Borrow and Use of Forest Area
Izin Usaha Pertambangan (IUP) : Mining Business License; valid
since 2010 after the establishment of UU
No. 4/ 2009
Izin Usaha Pertambangan Khusus (IUPK) : Special Mining Business License;
valid since 2010 after the establishment of
UU No. 4/ 2009
Kementerian Energi dan Sumber Daya Mineral : Ministry of Energy and Mineral Resources

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Keputusan Presiden (Keppres) : Presidential Decree
Keputusan Menteri (Kepmen) : Ministerial Decree
Kementerian Energi dan Sumber Daya Mineral : Ministry of Energy and Mineral Resources
(ESDM) (MoEMR)
Kontrak Karya (KK) : Contract of Work (CoW); for general
Mining
Kontrak Kerjasama Pertambangan Batubara (KKS)
: Coal Cooperation Contract (CCC); valid
before 1981
Kuasa Pertambangan (KP)` : Mining Authorization granted to the
agency / individual to carry out the mining
business; KP may conduct general inquiry,
exploration, exploitation, processing and
refinery, and transportation; KP
holders have the authority to undertake
one or more businesses specified in the
respective mining authority. This may be
awarded to the government institution
designated by the Minister of Mining, state
enterprise, regional enterprise, company
with joint capital between the state and
region, cooperatives, private entities,
companies with mutual capital between
the state and / or regions with
cooperatives and/ or private entities/
individuals who meet the requirements of
the artisanal mining.
Mahkamah Konstitusi (MK) : Constitutional Court
Majelis Permusyawaratan Rakyat (MPR) : People’s Consultative Assembly
Pajak Bumi dan Bangunan (PBB) : Land and Building Tax
Pajak Penghasilan (PPh) : Income Tax
Pajak Pertambahan Nilai atas Penjualan : Value Added Tax on Sale of Luxury Goods

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Barang Mewah (PPnBM)
Penanaman Modal Asing (PMA) : Foreign Investment
Penanaman Modal Dalam Negeri (PMDN) : Domestic Investment
Pendapatan Asli Daerah PAD) : Local Own Revenue
Penerimaan Negara Bukan Pajak (PNBP) : Non-Tax Revenue
PPA : Power Purchase Agreement
Peraturan Daerah (Perda) : Local Government Regulation
Peraturan Dirjen (Perdirjen) : Directorate General Regulation
Peraturan Pengganti Undang-Undang (Prp) : Government Regulation in lieu of Law
Peraturan Pemerintah (PP) : Government Regulation
Peraturan Presiden (Perpres) : Presidential Regulation
Peraturan Menteri (Permen) : Ministerial Regulation
Perjanjian Karya Pengusahaan : Coal Contract of Work (CCoW);
Pertambangan Batubara (PKP2B) valid from 1981 to 2010
Perseroan Terbatas (PT) : Limited Liability Company
Perusahaan Listrik Negara (PLN) : State-owned Electricity Company
Perusahaan Negara (PN) : State company (under BUMN scheme)
Perusahaan Umum (Perum) : Public company; this is a type of State-
owned Company whose capital is still
owned by the government, but has a
similar nature of the company service
(Perusahaan Jawatan/ Perjan) and the rest
is Limited Liability Company (Perseroan
Terbatas/PT).
Rencana Tata Ruang Wilayah (RTRW) : Spatial Planning
Rencana Tata Ruang Wilayah Nasional (RTRWN) : National Spatial Planning

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Rencana Umum Ketenagalistrikan Daerah (RUKD) : Regional Electricity Plan
Rencana Umum Ketenagalistrikan Nasional (RUKN) : National Electricity Plan
Rencana Usaha Penyediaan Tenaga Listrik (RUPTL) : Electricity Supply Business Plan
Surat Izin Pertambangan Daerah (SIPD) : Local Mining License
Surat Izin Pertambangan Rakyat (SIPR) : Community Mining License
Undang-undang Dasar 1945 (UUD ’45) : 1945 Constitution of the Republic of
Indonesia
Undang-undang (UU) : Law
Wilayah Pertambangan (WP) : Mining Area
Wilayah Usaha Pertambangan (WUP) : Mining Business Area
Wilayah Pertambangan Rakyat (WPR) : Community Mining Area
Wilayah Pencadangan Nasional (WPN) : State Reserve Area

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WORKING PAPER
1
Framing Coal to be Legitimate I:
A Historical Overview on Multi
Regulation of Coal Mining Sector in
Indonesia
Su m m a ry
Positioning as one of important coal producers in Pacific market, Indonesia has been through
several changing in both regimes and policies of coal governance. Since the very first of nation
establishment, regulations have been made as essential tools to rule mining as well as coal in
particular. Using historical overview, the regulatory framework on chronicle sequences of
mining including coal in particular from 1960 to the present year is able to map. As a result, the
making of mining policy is identified having both general and specific pattern. Generally, the
changing of policy is always followed by shifting permit mechanism up to administrative
dealings, which are adjusted with the ongoing political will. Instead, the distinctive design of
mining regime is differ depending on the reigns that are in power. The shifting on mining
authorization, permit scheme, investment, trading, and energy issue have been identified
colouring the dynamic regulation of mining as well as coal.
Keywords: mining, coal, political will, dynamic regulation
1. Introduction
Indonesia’s economic development and mining investment cannot be separated each other. It
must be inevitably admitted that this archipelago country places mining industry, one of which
is coal, as the backbone of the national economy. In Government of Indonesia (GoI) viewpoint,
the coal market is promising. As one of the cheapest energy sources notably for electricity,
1
Corresponding author at: Article 33 Indonesia, Jalan Salak Blok L-10 Komplek Kalibata Indah, Rawajati, Jakarta
Selatan, Indonesia 12750; Phone: +6282 138 271371; Email Address: Umilatifahp@gmail.com (U. Purnamasari)
and/ or secretariat@article33.or.id

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there will always be demands from both domestic and international markets. Hence, the
existence of coal has always been prima donna for those parties whom in power.
Playing an important role as one of the three main producers of coal in Pacific Market (share
the position with China and Australia) (Ekawan, Duchêne, & Goetz, 2006b), GoI realizes that in
order to bond with the coal; the governance must be propped up by a set of regulations.
Mining (or coal in particular) has been surrounded by several regimes and policies. They are
different based on ruler-making institutions, yet similar in the terms of regulating coal industry
in order to achieve compliance (OCallaghan, 2010). Until now, there have been several
changing, addition, and/ or modification of law and other regulations which definitely affecting
the coal policies. Contract system, for instance, is a product of this dynamic that already passed
8 generations (see table 2, table 3, and table 4 below). Those changes seem profitable for the
state but incriminating on the other side. Such factors of autonomy, participation,
accountability, transparency, and predictability are still being objected for some parties
(OCallaghan, 2010).
In substance, it is understood that multi regulation is certainly needed to framing coal to be
legitimate thus; coal mining can be legal under government control. The multi regulation is
made since there are many sectors embraced to run extractive industry; from exploration
process to distribution (to end users). Indeed, understanding how it works is also necessary
notably in terms of coal mining process itself. At any rate, the multiplicity often steps into a
policy failure and incoherence (OCallaghan, 2010; Safadi, Lattimore, Maher, & Legendre, 2009).
Each ruler-making institute may have different perspective in regulating coal. As the results,
they are overlapped, not synergistic, and more egocentric due to varied interests. In addition,
this is also unpredictable due to the transition of political will. On the further escalation -
according to OECD (2016), the symptom of corruption may appear.
However, unravelling this complexity is essential. Thus, this paper aims to examine the
historical sequence and the background of why those regulations should exist. An analysis of
regulatory framework is then carried out, thus, the whole process of coal mining including the

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regulatory regimes and the political wills behind it can be thoroughly identified. Moreover, we
also highlight some specific questions to tie the analysis with the objectives such as why those
particular laws appear; what kind of encouragement lies behind it; in which era of government
these regulations exist; and what is the background of this political policy.
This working paper would discuss a historical sequence of general mining policies based on the
law since the Old Order up to the current government reign. This would also overview events
behind two legendary Mining Laws UU No. 11/ 1967 during Old Order reign and UU No. 4/ 2009
in post reform era which then eventually discussed the coal mining in particular.
2. Historical Sequence of Mining Policies Based on Law and its
Derivatives
In terms of coal mining, the demand on this sector has been high even since colonial era
(around 1800s) (Susilo and Prathomo, 2004). Both international and domestic market of coal
has played an important role in national economic development (Bowden, 2012; Clark, 2006,
2007; Ekawan, Duchêne, & Goetz, 2006a; Ellerman, 1995). Coal is still impressed as the
cheapest energy especially for electrification (Colley, 1998). According to Muchlis & Permana
(2003), the demand for electricity is directly proportional with population growth. Therefore,
though the global demand for coal is decreasing due to the “quit dirty energy” campaign, GOI
seems still confident to put coal as one of the commodity idols.
However, coal demand has been recording fluctuated. Indonesia, since its establishment as a
country in 1945, has been through 7 reigns that indicate many changes in political view. This
dynamic view tends to be triggers in regulation making which ranging from law at national level
to Local Government regulation. Simply, each reign has their policy influenced and demanded
by the political situation (OCallaghan, 2010).
Figure 1 depicts the changing laws related to mining policies. However, we further limit this
study on mere coal mining. Thus, though in every discussion is started by the explanation of
mining in general, they are projected to be more focus on coal.

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UU No. 5/ 1960
(basic regulation
on agrarian)
1960
1965-1968
1999 2003
2004
2007
2009
2014
UU No. 1/ 1967
(foreign investment).
UU No. 5/ 1967
(basic regulation on
forestry)
UU No. 11/ 1967
(basic regulation on mining)
*replaced UU No. 37 Prp
1960
UU No. 22/ 1999
(local government)
*replaced UU No. 5/ 1974
UU No. 41/ 1999
(basic law on forestry)
*replaced UU No. 5/
1967
UU No. 19/ 2003
(state enterprise
(including
electricity))
UU No. 19/ 2004
*adding a provision on article 83 (a)
and 83 (b) of UU No. 41/ 1999
UU No. 32/ 2004
(local government)
*replaced UU No. 22/ 1999
UU No. 33/ 2004
(fiscal balance between state
government and local
government)
UU No. 25/
2007
(investment)
*replaced both
UU No. 11/
1970 and UU
No. 12/ 1970
1969-1970
UU No. 11/ 1970
(foreign investment)
*replaced UU No. 1/ 1967
UU No. 12/ 1970
(domestic investment)
*replaced UU No. 7/ 1968
UU No. 7/ 1968
(domestic investment)
1985
UU No. 37 Prp/ 1960
(mineral mining)
*replaced Indische Minwet
1899
UU No. 15/ 1985
(electricity)
*replaced
Staatsblad No. 63/
1934
UU No. 30/ 2007
(energy)
UU No. 40/
2007
(limited
liability
company)
UU No. 2/ 2009
(financing institution on
export)
UU No. 4/ 2009
(mineral and coal)
*replaced UU No. 11/
1967
UU No. 28/ 2009
(local tax and r etribution)
UU No. 30/ 2009
(electricity)
*replaced UU No. 15/ 1985
UU No. 32/ 2009
(environment protection and
management)
UU No. 7/ 2014
(trading)
*replaced
Bedfrijsreglementerings
Ordonnantie (BO) 1934
UU No. 23/ 2014
(local government)
*replaced UU No. 32/ 2004
1992
UU No. 24/ 1992
(spatial planning)
UU No. 26/ 2007
(spatial planning)
*replaced UU No. 24/ 1992
UU No. 18/ 1965
(local government)
*replaced UU No. 1/ 1945
juncto UU No. 22/ 1948
juncto UU No. 1/ 1957
1974
UU No. 5/ 1974
(local government)
*replaced UU No.
18/ 1965
Old Order New Order Post Reform Era
UU No. 19 Prp/ 1960
(BUMN/ state enterprise)
*replaced UU No. 6/ 1958
juncto UU No. 12/ 1955
juncto UU No. 8/ 1941
(colonial law) juncto
Indonesische
Bedrijvenwet 1927
UU No. 9/ 1969
(BUMN)
*Replaced PERPU No. 19/
1960
UU No. 19/
2003
(BUMN)
*replaced UU
No. 9/ 1969
Figure 1. Historical Sequence based on Law Related to Mining Sector
2.1 Old Order to New Order (1960-1967): From one economy policy to
capitalization
After gaining independence from Dutch, Indonesia’s law remained unstable. To some extent,
most of the Colonial Laws were still hold and used as the national policies. One of them was
Indische Mijnwet 1899 that used to rule mining sector. Although then in 1960 a law of UU No.
37 Prp/ 1960 was made, the mining policy had no much differences compared to the Colonial
Law except in term of ownership (Susilo and Prathomo, 2004). As initiated by President
Soekarno, the mining regime was projected to nationalize the entire foreign corporations. This
means, extractive industry must absolutely be under government control (read: under BUMN
(state company/enterprise)) in order to achieve one economy policy (Simatupang, 2005)
2
. The
2
According to Simatupang (2005), during the implementation of nationalization on foreign company, Old Order
was creating many BUMNs as one of the government's manifestations on economic sectors especially in natural
resources management.

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BUMN was regulated by UU No. 86/ 1958 which, howsoever, was directed to alter the foreign
company notably ex Dutch’s into state enterprises in the form of BUMN.
2.1.1 Mining Law versus Agrarian Law in 1960
At any rate, the year of 1960 was being a milestone of GoI to show their authority in
managing natural resources. As mentioned above, UU No. 37 Prp/ 1960 was an initial
mining law used to regulate the mining policy, including coal commodity. On the other
hand, UU No. 5/ 1960 was also issued to regulate agrarian issues. Meanwhile, BUMN Law
was reinforced by the regulatory changes followed by the release of UU No. 19 Prp/ 1960
on how to manage state-owned enterprise (Seda, 2005). All of the Mining Law, BUMN Law,
and Agrarian Law were standing together as the derivatives of UUD ‘45
3
especially on article
33 paragraph 2 and 3, respectively as follows:
“Production sectors that are important to the State and which affect the livelihood of
the people are controlled by the State”.
“Earth, water and natural resources contained therein are controlled by the state
and used for the greatest prosperity of the people”.
In the agrarian term, article 33 of UUD ’45 is clearly enlightened by UU No. 5/ 1960. In line
with the message, article 1 paragraph 2 of this UU confirms that the earth and its natural
resources richness is a blessing and acknowledged as the national treasure. In paragraph 4,
the definition of the earth is not only limited on the surface but also including the earth's
body beneath and under water. This is then strongly supported by article 2 which mainly
regulate on how those national treasures should be managed and controlled by the state
for people’s welfare. However, the state is not set as the owner of the treasure but merely
the holder of the authority.
In addition, UU No. 5/ 1960 in the mining sector has automatically terminated the Indische
Mijnwet mining regulation (Stbl.1889 No.214). This Colonial Law was regulating the granting
of authority to a person or legal entity (especially Dutch company) conducting mining in the
3
1945 Constitution of the Republic of Indonesia

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form of concession rights for 75 years by paying contributions to the Dutch East Indies
government.
Furthermore, in terms of mining, UU No. 37 Prp/ 1960 used an article 33 of UUD ’45 as an
umbrella law in managing extractive sector. Many mineral and coal spots are legally allowed
to be exploited as long as it can benefit people. One economy policy as part of guided
democracy was strongly injected into mining policy during Old Order. The program of
nationalizing foreign companies is seen as an attempt to design self-management method.
Managing important sectors of the economic sector with Indonesian human resources was
a dream at that time. Thus, a scheme of Production Sharing Contract (PSC) under PP No. 20
/ 1963
4
was offered to foreign investors (Hayati, 2015). Foreign investors could take a part
in investment through PSC scheme by the capital lending system. Yet, they had no rights in
ownership since the management would be organized by GoI.
Actually, the Foreign Investment Law was once initiated during ministry cabinet Ali
Satroamidjojo I in 1952-1953 but never been submitted to Parliament (read: DPR
5
). In 1953,
ministry cabinet Ali Sastroamidjojo II submitted a draft of Foreign Investment Law to
Parliament but rejected. However, there was the first law of Foreign Investment that had
been launched in 1958 such as UU No. 78 / 1958. This law was established using some
considerations:
1. In order to accelerate Indonesia economy development, the need of capital is necessary.
2. The existing national capital was not enough, thus inviting foreign investment benefit to
collect another capital.
3. However, a specific regulation with clear points on foreign investment should be made
in order to avoid hesitating from the foreign investor.
4
Government Regulation
5
House of Representative

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Unfortunately, by using UU No. 15 Prp/ 1960, the law of Investment UU No. 78/ 1958 was
revoked. A UU No. 16/ 1965 was then established in order to maintain the purity of one
economic policy. This UU provides a clear explanation:
“Foreign investment in Indonesia is seen as a scheme to attract profit, thus this
would torment the people of Indonesia, as well as hamper the revolution process for
social-national democracy based on Pancasila
6
. This would also inhibit the principal
of one economy policy that had been initiated to encourage national development
without imperialism and feudalism”.
One economy policy seemed realistic and futuristic, notwithstanding, as predicted by
Soetaryo Sigit - the ex- Secretary General of Department of Mining and Energy in Susilo and
Prathomo (2004), this would get caught in a serious failure. As the ownership was not
recognized, thus the investors (notably the foreign investor) prefer not to take a risk in
Indonesia’s extractive industry at that time. Moreover, the condition of Indonesia to stand
as a country is not yet fully stable. As a result, the prediction was true; the mining including
coal, in particular, was stuck and assessed to be unproductive. In this era, the mining sector
was not so influential on the national economic growth. As depicted in table 1, several
symptoms of inflation began to appear as the impact (Dick, Houben, Lindblad, & Wie, 2002).
Table 1. Economic Indicators in 1951-1967
1951
1957 1960 1962 1964 1965 1966 1967
Real GDP (1938
-
100)
GDP per capita (IDR.)
Money growth (%)
Inflation (%)
Official exchange (IDR./$)
Black market rate
Reserves ($ million)
90
2126
16
65
3.8
16.5
511
123
2320
41
5
11.4
45.8
224
123
2441
39
26
45
150
337
132
2441
99
167
45
850
135
134
2364
156
93
250
7200
35
135
2324
280
284
10000
36000
26
139
2271
763
898
10*
122*
23
141
2141
132
192
235*
290*
53
*exchange rate new currency = 1/1000
Source: Dick, Houben, Lindblad, & Wie (2002)
6
Pancasila is Indonesia ideology

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2.1.2 The power of New Order from 1966 to 1998 by bringing back the foreign investors
As soon as the end of Old Order era, New Order then took over the authority of GoI. Under
the president Soeharto, Indonesia economy policy was drastically changed to more capital
centrist (Nordholt & van Klinken, 2007; Otto et al., 2006). In order to curb inflation, bringing
back the foreign investor (like what the colonial government has done) is the initial
intention. The first breakthrough taken was the making of UU No. 1/ 1967 about foreign
investment (PMA/ Penanaman Modal Asing). The point of this law is to welcome back the
investor on extractive sector including coal mining. The law was also altering the
“ownership” term. Previously, it was fully controlled by GoI through BUMN scheme yet this
time company was turning to absolute owner of concession. The GoI of New Order
authorizes the company (the concession holder) to establish their own mining business
(Zake, 2000).
Substantively, UU No. 1/ 1967 was made based on a provision by MPR
7
; Tap MPRS No. XXIII/
1966
8
. This is more about the renewal on policies of economic foundation and
development. Article 9 specifically provides this message:
“Economic development is notably on how to manage the potential of economic
become pure economic through capital investment, technology-based, encouraging
knowledge improvement, as well as organization-management skill training”.
This provision was also used by GoI (at that time) to assign the economy policy of foreign
investment. Then, this is used as the basis of UU No. 1/ 1967 establishment.
However, under this Foreign Investment Law- UU No 1/ 1967, foreign capital and foreign
mining companies can conduct collaboration with GoI under contract scheme. Since then,
the foreign capital holder has the opportunity to explore and exploit mineral and coal
resources in Indonesia. It is very contrary to Old Order which GoI fully handled and
managed the mining sector. Instead, this can even be managed individually. This is set forth
in article 8 paragraph 1:
7
Combine Consultative Assembly
8
MPR provision

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“Foreign investment in mining is based on a partnership with the government on the
basis of a Contract of Work (CoW) or can be in another form in accordance with
applicable regulations”.
At the same year, another quick move was the making of UU No. 11/ 1967, which replaced
the old Mining Law of UU No. 37/ 1960. The newest Mining Law was made to regulate
authorization, classification, and control on the mining sector. This absolute authority of
mining foreign company is also clarified in article 10 paragraph 1 of this Mining Law:
“The Minister may designate another party as a contractor if necessary to carry out
work that has not been or cannot be self-administered by the government agency or
the state enterprise concerned as the holder of the mining authority”.
Still, based on this law, minerals are classified into three categories; class A for strategic
mining, class B for vital mining and class C for neither strategic nor vital. The Minister of
ESDM (MoEMR) issues permits for class A and B, while the governor of province issues class
C. Interestingly, despite there has been no clear definition of the class criteria, those
categories were strongly forced to be used as the basis of who will be responsible for
mining business in terms of administrative territory. This ultimately led to various
management irregularities that have emerged to date.
If we are going to further review, those two laws above were set as the tool to intensify the
role and function of the GoI as the ruler and owner of natural resources. At this point, this is
clearly that the ignorance on local community has been started. At this time, GoI was now
standing for the capital holder rather than to their people. It can be said that the mandate
of UU No. 11/ 1967 to prosper the people is still far from expectations.
2.1.3 Four strategic laws related to mining sector and contract scheme
New Order reign is quite impressing in deciding tactical step compared to Old Order. It was
only 2 years (during 1966-1968) after the cabinet establishment; New Order was able to
release 4 UUs related to extractive sectors. There were UU No. 1/ 1967 on foreign
investment (Penanaman Modal Asing/ PMA), UU No. 5/ 1967 on forestry, UU No. 11/ 1967
on mining, and UU No. 7/ 1968 on domestic investment (Penanaman Modal Dalam Negeri/

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PMDN) (see Figure 1). Those altogether were directed to bringing back the investment
climate at both international and domestic level.
UU No. 11/ 1967 was the “God” of Indonesia mining sector. The authorization (read:
concession) for the private mining company is allowed as long as the mining license has
been holding. The mining license for foreign investor under PMA scheme is called as
contract scheme –Contract of Work (KK) for general mining and Coal Contract of Work
(PKP2B) for coal mining
9
, as stated on article 8 paragraph 1 of this law. While mining license
for local investor under PMDN scheme is called by Kuasa Pertambangan (KP/ Mining
Authorization)
10
(Lucarelli, 2010). Until in the end of New Order there are 6 generations of
KK (see Table 2) and 2 generations of PKP2B (see Table 3). At any rate, we provide
separated explanations on those two CoW types. In term of CCoW, we include the
discussion of PKP2B generation III since this generation was released during transitional
period of New Order to Reform Era in 1997-2000. Moreover, generation III of PKP2B is
recorded as the last generation in PMA coal mining.
9
There are two types of Contract; PKP2B is a Coal Contract of Work (CCoW) for coal mining, KK is a Contract of
Work (CoW) for general mining. Before 1981, PKP2B was KKS (Collaboration Contract on Coal Mining/ CCC) (The
more detail explanation of these terms can be seen on the “glossary” on page 2.
10
According to Lucarelli (2010):
“Local investors were also allowed to participate in the coal mining industry under a license known as a
Kuasa Pertambangan (KP), which grants exclusive mining rights within a coal mining area for a specific
stage of the coal mining program. A KP can be issued by any branch of government — regency (by the
regency head), province (by the governor), or the central government (by the minister of energy and
mineral resources). The specific government level that issues the KP will be determined by the location of
the proposed mining area. If the mining area is contained within single regency, the head of that regency
will issue the KP. If it overlaps two regencies but is in one province, the provincial governor will issue the
KP. If it overlaps two provinces, the minister of energy and mineral resources will issue the KP”.
KP (Kuasa Pertambangan) is mining authorization. KP is also owned by state enterprise or BUMN that play mining
industry. Furthermore, in term of foreign investment, a principal is needed. For KK or CoW scheme, government is
a principal of the contract who can coordinate and monitor the mining activities. Meanwhile in PKP2B scheme, a
BUMN of coal state enterprise is decided as the principal of the contract who can coordinate and monitor the coal
mining activities (Hayati, 2015 and Redi, 2015). The detail explanation –of whom KP can grant and what type of
mining activities can be conducted; can be seen on glossary section.

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CCoW-KK during New Order Reign
Table 2. Generations of Mining Contract- KK from 1967 to 1998
No
Contract of
Work (CoW)
Period of
realization
Number of granted
licenses/ corporations
Requirements and events
1
Generation I
1967
-
1968
1 CoW of PT. Freeport
Indonesia in Papua
-
Tax holiday for 3 years
- 35% production tax of net
income
- Royalty is calculated using
production rate, started in 1985
2
Generation II
1968
-
1976
16 CoWs
-
Maximum divestment up to 45%
- 35% production tax of net
income
- The royalty payment is based on
the Contract of Work
- Mostly regulated by Inpres No.
18 / 1968
11
about the flexibility
in foreign investment
3
Generation III
1976
-
1985
13 CoWs
-
Divestment at 5
-
51
%, joint
venture is allowed
- 35% production tax of net
income
- Royalty is obtained using
Kepmen Pertambangan dan
Energi No. 352 / 1972
12
- Mostly based on PP No. 21/
1976 of the flexibility on tax and
other collections on mineral and
coal mining
4
Generation IV
1985
-
1986
95 CoWs
-
The initiation of smelter
development
- Frontier development
- Progressive revenue-tax applied
5
Generation V
1986
-
1996
7 CoWs
-
The implementation of
divestment based on PP No. 20 /
1994
- Progressive revenue-tax applied
- Royalty is obtained using
Kepmen Pertambangan dan
Energi
13
No. 1166/844/MPE /
1992
- PT. Freeport Indonesia through
11
President Instruction (the explanation can be seen in glossary section)
12
Ministerial Decree of Mining and Energy
13
Ibid

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the contract extension in 1991 is
transforming as a part of
generation V
6
Generation VI
1996
-
1998
65 CoWs
-
Acceleration of
depreciation
based on PP No. 34 / 1994
- Royalty is obtained using
Kepmen Pertambangan dan
Energi No. 1166/844/MPE /
1992
- Progressive revenue-tax applied
- PT. Inco through the contract
extension in 1997 is
transforming as a part of
generation VI
Source: analysed data based on Soelistijo ( 2011) and Susilo & Prathomo (2004)
Further, both UU No. 1/ 1967 and UU No. 7/ 1968 were intended to legalize the private
investors (can be either foreign or domestic) conducting mining business. Hence, it can be
simply said that the existence of investor was supported by Investment Law, and the
authority was given by Mining Law. Additionally, UU No. 5/ 1967 is a basic law for forestry
management. This law –also together with Investment Law, are made to invite investor
conducting extractive business in forest areas. The license scheme of concession was quite
similar to mining sector. However, according to Ferdiansyah (2015) and Simon (2000), this
Forestry Law was also identified to be used for establishing mining on forested areas. UU
No. 5/ 1967 does not mention the prohibition of mining activities in forest areas, notably in
protected forest areas. Mining in protected forest areas can be carried out under a scheme
of Permit to Borrow and Use of Forest Area (Izin Pinjam Pakai Kawasan Hutan/ IPPKH), even
if the activity is not related to forest management. The selected forest area will be
exchanged with non-forested areas. PT. Freeport as the first CoW grantee was a figure who
has been blessed by this scheme. Besides being the first foreign company in Indonesia
under UU No. 1/ 1967 and UU No. 7/ 1967, UU No. 5/ 1967 gives PT. Freeport a red carpet
to do mining in the forest area (Ferdiansyah, 2015).
CCoW-PKP2B during New Order Reign
The first contract on coal exploration during the new order was initiated by Shell Mijnbouw
in South Sumatra in 1973-1979. This was then developed as a Production Sharing Contract

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(PSC) No. 36/1975 with the deal agreed upon a first phase profit sharing to share 60 % of
the profit of 30 % from the first 5 years of production and up to 60 % from the next years to
the government. It means 18 % for the government in the first stage and would be
increased until reaching 36 %. However, the contract was terminated since the government
proposed renegotiation repeatedly so that no agreement reached (Wollff, 2013).
Coal is a non-renewable natural resource that is not owned by all countries. Therefore, a
strategic value is primarily economic value as a commodity and energy source. The end of
bonanza oil price after the 1980s makes coal become one of the primary energy alternatives
of interest (Sanusi, 2002; Arif, 2012). Indonesia was then preparing to divert natural
resources from oil to coal.
Foreign investment in the coal sector was then re-established in South Kalimantan by Utah
and Arco, as the joint coal company Arutmin. They rejected the 18 % profit sharing as
previously offered by Shell. They offered a 9% rate and then reached a 13.5 % midway deal
with PN Tambang Batubara. It was established by the issuance of Keppres No. 49/ 1981 on
the first generation coal cooperation contract or later known as the Coal Contract of Work
(PKP2B). Thus Indonesia's first coal exports reached 415,000 tons or 64 % of the total
national production of 648,000 tons by 1983 (Arif, 2012). By then, PN TABA in South
Sumatra was also changed into Limited Liability Company (PT) Bukit Asam.
By 1990, the PN Tambang Batubara, reshaped as Perum (Public Company) Tambang
Batubara, was dissoluted while the government injects state capital to PT Bukit Asam as
stated in Government Regulation PP No. 56/ 1990 on dissolution of Perum Tambang
Batubara and additional investment of State Capital of the Republic of Indonesia to Limited
Liability Company (PT) Tambang Batubara Bukit Asam up to 65 % of its share.
By 1994, there was an impulse to take domestic investment for the second generation
CCoW (PKP2B) as stated in Keppres No. 21/ 1993. The second generation CCoW signed the
contract with PT Bukit Asam. The obligation of the second generation is subject to prevailing
law. Furthermore, the third generation of CCoW was offered under the Keppres No. 75/

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1996 along with offers for KP to change into CCoW. During the crises and political chaos of
1997-2000, 114 CCoWs were signed with lex specialis obligation: following the law that was
applied when the contract is signed.
Table 3. Coal Contract of Work-PKP2B
Generation
I
Generation
II
Generation
III
Signature Year
1981
-
1990
1994
1997
-
2000
Company
11
9
2
Initially Foreign
investment (PMA)
17
0
17
Initially Domestic
investment
(PMDN)
114
9
105
Regulation
Keppres No. 49/ 1981
Keppres No. 21/ 1993
Keppres No. 75/ 1996
Tax
Nailed down according
to the contract for
foreign direct
investment; 35 % to
45 % after 10 years.
New tax obligation
applied the first
generation CCoW
company should be
reimbursed by the
government
Prevailing to the
applicable law
30 %
(1994 Tax Law)
Lex specialis, the tax
obligation will follow
regulation that is applied
when the contract is signed
(30 % as in 1994 Tax Law)
KP holders were offered to
request change of
authorization to PKP2B (then
KKB)
Production
share
In kind (
coal
)
13.5 % of its
production
In kind (
coal
)
13.5 % of its
production
In cash
, 13.5
%
of its
production sales deducted
by sales cost

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Final Shrinked Area
25
%
of initial area
(unlimited)
Can be more than one
block of general
feasibility studies in
stages
25
%
of initial area
(maximum 100,000
ha)
Can be more than one
block of general
feasibility studies in
stages
25
%
of initial area
(maximum 100,000 ha)
Can be more than one block
of general feasibility studies
in stages
Principal
PN/
Perum
Tambang
Batubara/PTBA, later
taken over by
government
PTBA
, later taken over
by government
Government
Divest
ment
According to the time
schedule starting from
5th year of
production, not less
than 51% submitted to
Indonesia by 11th year
of production (for FDI)
Not applicable sin
ce
this generation was
aimed at domestic
investment
PP
No.
20/
1994
was applied
Area development
Contractor should pay
attention to local
interests specifically
concerning area
development
Contractor should
pay
attention to local
interests specifically
concerning area
development
Contractor will always
cooperate with government
Local charges
I
n to
local taxes and
retributions
determined by the
Central Government,
contractors also pay
"lump sum" of US $
100,000 for various
local charges
In accordance
with
applicable regulation
Contractors pay fees, taxes,
charges, and duties imposed
by Local Governments that
have been approved by the
Central Government in
accordance with applicable
laws and regulations with
tariffs and are calculated no
greater than the amount
calculated under the laws
and regulation on the date
the agreement is signed
Initial Cost
Set
US$ 100,000
-
US$
500,000 as data
Set
IDR
100,000,000
as
Not collected

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co
mpensa
tion
data compensation
Advance Payment
Contractor should
deposit Advance
Payment by US$
50,000-US$ 75,000
annually
Contractor should
deposit Advance
Payment by IDR
50,000,000 annually
Contractor is not obligated
to deposit Advance Payment
Source: Sembiring (2009), EITI (2014)
The factors of the provision in Generation I-III CCoW include legal basis, authorization
status, operations management, principal, profit sharing, facilities and infrastructure,
corporate tax, divestment, local content on labor, initial cost, advance payment.
The production sharing figure of 13.5 % as in Arutmin contract was then applied as Coal
Sales Fund to other CCoW, but an increase in profit sharing after 5 years of initial
production as agreed with Shell was never considered anymore. Instead, there are
agreements of divestment starting from the fifth year of production up to 51% of its share.
The divestment policy on CCoW is basically the same as in the CoW.
The royalty obligation is included within the 13.5 % production sharing while there are
other obligations such as land rent, profit tax, local retribution validated by the Ministry of
Finance, dividend and staff income tax, sales tax, duties. But the 13.5 % sharing turns out to
bring substantial state revenues and the greatest when compared to the royalty system in
other countries in the world (Soelistijo, 2013).
In sum, New Order was progressive in embodying the investment under the name of
economic development. The laws they made were projected to realize their political will;
increasing the industrial climate for large income but ignoring the social-ecology impact.
Thus, the policies were lame and stimulated to conflicts. Moreover, albeit this reign was not
carrying “guided democracy” as their principle, the politic pattern was more centralized
(Nordholt & van Klinken, 2007; Silver, 2003). All governance at any level was governed by
the Central Government (GoI).

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2.2 The Beginning of New Era: The Dynamic of Mining Policies from Reform to
Present Time
The fall of the New Order provided fresh air for democracy growth. This marks the end of the
centralized power after 32 years. Political changes were pressing for many modifications in
policy reform. One of critical needs that have to be accommodated is decentralization. Thus,
autonomy was put as the initial step by GoI to reform policy direction at the local level as
mandated by the reform.
We distinguish two important periods after the fall of New Order; the period before the
establishment of UU No. 4/ 2009, and the period from 2004 to at present. The first period
covers from the reform reigns including Megawati reign. Meanwhile, the period from 2004 to
at present covers the Susilo Bambang Yudhoyono (especially during the establishment of UU
No. 4/ 2009) and the reign of recent government under Joko Widodo Presidency.
At the first period, it has been recorded that only in few years the law modifications were
initiated. At early reform, there were two laws related to mining released in order to replace
the old ones. The first one is a law of Local Government UU No. 22/ 1999 that was projected to
replace UU No. 5/ 1974. The second one is a law of Forestry UU No. 41/ 1999 that was
projected to replace UU No. 5/ 1967. Both of them were, then, modified in 2004 during the
Megawati presidency.
During this period, other 2 generations of CoW were also released (see table 4). Generation VII
was launched in 1998 – 2004 which successfully created 38 CoWs. These then followed by
further generation in 2004 –namely generation VIII, which has released 1 CoW. Interestingly,
the “flexible” contract was applied in this generation. The last contract of generation VIII
requires an agreement on both tax and not-tax payment scheme to follow the applied
regulation. This means the payment scheme would be dynamic depending on existing
regulation.

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Table 4. Generations of Mining Contract in 1998 - 2004
No
Contract of Work
(CoW)
Period of
realization
Number of granted
licenses/ corporations
Requirement
s and events
1
Generation VII
1998
-
2004
38 CoWs
-
Royalty is obtained using
Kepmen Pertambangan dan
Energi No. 1166/844/MPE /
1992
14
- Progressive revenue-tax
applied
- Overall almost the same with
generation VI
2
Generation VIII
2004
-
now
1 Cow of PT. Jogja
Magasa Indonesia
(before the
establishment of UU
No. 4/ 2009)
-
The contract requires a
n
agreement on both tax and
not-tax payment to follow the
applied regulation. This means,
the payment will be following
the existing regulation.
Source: analysed data based on Soelistijo ( 2011) and Susilo & Prathomo (2004)
2.2.1 Period 1: From early reform to Megawati Presidency
2.2.1.1 Local Government Law of UU No. 22/ 1999 juncto UU No. 5/ 1974
Decentralization is the state's response to the demands of equity and justice at the local
level. This was granted by UU No. 22/ 1999. Through this law, regional authority becomes
the new artery of the life. The enactment of regional authority on natural resource
management through the distribution of authority and the financial balance between the
Central Government and Local Governments is expected to increase prosperity.
Previously (in New Order era), a Local Government Law of UU No. 5/ 1974 ruled the portion
as well as the authority between Central Government and Local Government. In fact, the
portion never really existed. The policy made by Local Government could be enacted after
agreed and ratified by the authorized official at the Central Government. Thus, the Central
Government was able to interfere Local Government in terms of policy making. The entire
scheme related to extractive permits and/ or licenses were released by the Central
Government. Howsoever, after gaining reform in 1998, through UU No. 22/ 1999 the policy
on Local Government was reformed into decentralization (Larson & Soto, 2008; Shair-
14
Ministerial Decree of Mining and Energy

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Rosenfield, Marks, & Hooghe, 2014). The Local Government deserved to rule their own
territory based on local’s aspiration. The highest authority was passing to the governor of
the province as the Central Government representative at the local level. Since then, the
permit and/ or license of extractive industry is belong to Local Government’s authority.
A PP No. 75/ 2001
15
was made as a derivative regulation under the newest Local
Government Law (UU No. 22/ 1999). Several portions of authority are explicitly listed in
article 1:
“The regent or mayor is authorized to issue a mining authority if the mining
concession is located within the district/ City and/ or up to 4 nautical miles.”
“The governor has the authority to issue a mining authorization letter if the mining
concession area is located in several districts/ municipalities and is not carried out in
cooperation between districts/ municipalities or between districts/ municipalities
with provinces and/ or in marine areas that are between 4 and 12 nautical miles.”
“The minister has the authority to issue a mining authorization letter if the mining
concession is located in several provinces and there is no cooperation between
provinces and/ or marine areas beyond 12 nautical miles.”
Altering from centralization to decentralization seems promising. However, practically, Local
Governments feel entitled to manage their natural resources (Larson & Soto, 2008;
Nordholt & van Klinken, 2007). As a result, each region is competing to exploit natural
resources in its territory by issuing local regulations that lead to long bureaucracy, high fees
for licensing, unfulfilled taxes and dredging of natural resources. Taking a big chunk of
opportunity, Local Government impressively released "big sale" program on mining permit
under KP scheme. Eventually, just in few years after the Local Government law
establishment, there have been a thousand licenses issued by Local Government. Most of
which are declared to be administratively problematic by Ministry of Energy and Mineral
Resources. Those are overlapping with other regulations, occupying other land uses and
potentially having the conflict with communities (Caspary, 2012).
15
Government Regulation

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2.2.1.2 Forestry Law of UU No. 41/ 1999 and its relation to mining sector
In 1999, another law in forestry sector was also made. UU No. 41/ 1999 was projected to
replace UU No. 5/ 1967. Reviewing this law is essential since there are several important
points related to mining sectors. It can be predicted that the existence of UU No. 41/ 1999
was influenced by ongoing political will.
UU No. 41/ 1999 on forestry is one of the laws that have generated public condemnation
since its emergence because it is far from participatory and transparent principles.
Therefore, many problems have been recorded at implementation. In addition, the point of
view of this law has not much different from the old one; UU No.5/ 1967.
Article 38 paragraph 3 states that forest area is possible to be realized for mining activity
under IPPKH signed by the Minister of Forestry using considerations of area boundary and
time period. Paragraph 4 mentions an exception for Protected Areas (PAs). Mining activity
using open mining method in PAs is strictly prohibited. However, this exception is also
possible to be ruled out. If we look at paragraph 5, the lend-use permit can be considered as
long as having positive impact and strategic value. In this case, the permit is issued by the
minister of Forestry under Parliament’s approval.
Interestingly, there is a change on “forestry business” that must be underlined. Business
units are no longer expected as timber production only, but also open opportunities to
develop non-timber economic activities in protected forest areas and conservation forests;
which is one of them is mining business.
Overall, this law was hasty in making process. There were lacks on academic paper used for
its consideration. At any rate, since this law is recognized as powerful law, thus “a regime”
of forestry under this law is also playing an important role in Indonesia’s natural resources
management. The more discussion on this law will be in the next section.

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2.2.1.3 The end of Megawati presidency and other regulation modifications
Although there are two other presidents after the fall of New Order, the reign of Megawati
is more interesting to discuss. This due to the long reign period compared to the previous
one. Also, several policies related to natural resources management were modified during
her existence. There are 3 important laws on respectively; Local Government, fiscal balance,
and forestry that have been released.
Fiscal balance and decentralization terms
A Local Government authority was a big issue that lies behind reform. Giving an absolute
authority to Local Government through decentralization was one of the reform goals. The
previous centralistic authority during New Order was considered irrelevant. Although the
making of UU No. 22/ 1999 was aimed to meet the demand for reform, the term of
autonomy had not been detailing stated. Therefore, the making of UU No. 32/ 2004-which
was enacted on 15 October 2005, was greeted with joy among Local Governments since the
points of autonomy schemes were successfully added. After more than three decades of
devotion to the Central Government, they are allowed to manage their local affairs under
autonomy scheme. In addition, the highest authority at Local Government level was not
only the governor as the head of the province but also the regent/ mayor as the head of the
regency and/ or city. This would be depended on the mining territory. If the territory is
administratively under a regency/ city, the regent/ mayor would sign the mining license.
UU No. 33/ 2004 was a new term, which emphasizes notably on fiscal balance (balancing
funds) between the Central Government and Local Government. The implementation of
decentralization necessarily requires a large funding source. The Implementation of Local
Government functions can be optimally carried out if the arrangement of government
affairs followed by the provision of adequate sources of revenue to the region. However,
this law could not be separated with UU No. 32/ 2004. Those, together, regulate the
enforcement of 3 important points for instance decentralization, regional autonomy, and
fiscal balance scheme.

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In relation to fiscal balance, UU No. 32/ 2004 regulates how DBH derived from taxes and
natural resources namely PBB (Pajak Bumi dan Bangunan), BPHTP (Bea Perolehan Atas Hak
Tanah dan Bangunan), and general mining revenue which derived from fixed contribution
(land rent) as well as exploration dues and exploitation dues (royalties) resulting from
resources origin
16
. The others, such as PPh (Pajak Penghasilan), PPN (Pajak Pertambahan
Nilai Barang dan Jasa), PPnBM (Pajak Pertambahan Nilai atas Penjualan Barang Mewah
17
,
stamp duty, and local tax. Those revenues would be shared to Central Government and
Local Governments by referring to the provisions of UU No.33/ 2004.
At any rate –specifically, the discussions on fiscal balance related to mining sector are
clearly explained in several articles of UU No. 33/ 2004. They are article 5, article 11, article
12, article 13, article 14, article 17, article 21, article 25, and article 29.
Article 5 of UU No. 33/ 2004 highlights local revenue sources. During the implementation of
decentralization, the local revenue sources consist of PAD (Pendapatan Asli Daerah)
18
,
balancing funds, and other legal incomes. Balancing funds are from APBN (Anggaran
Pendapatan dan Belanja Negara)
19
which allocated to the area of mining origin
20
to finance
regional needs in the context of decentralization. These consist of DBH (Dana Bagi Hasil),
DAU (Dana Alokasi Umum), and DAK (Dana Alokasi Khusus)
21
. The Balancing Fund is not only
intended to assist the region in funding its authority, but also to reduce inequality of
government funding sources between the Central Government and Local Governments and
to reduce the inter-regional government funding disparities.
In term of sharing, article 14 mentions about state revenue distribution especially for those
are from natural resources extraction. As also explained in article 11 paragraph 3 point c,
16
This can be seen on article 160
17
PBB = Land and Building Tax, BPHTP= Acquisition of Land and Building Rights, PPh= Income Tax, PPN= Value
Added Tax on Goods and Services, PPnBM= Value Added Tax on Sale of Luxury Goods.
18
Local Own Revenue.
19
State Budget and Expenditure
20
We use term “mining origin” to represent the region of mining/ extractive industry. They can be province,
regency, and/ or City.
21
DBH= Sharing Revenue, DAU = General Allocation Fund, and DAK = Special Allocation Fund.

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revenue from natural resources extraction including mining, in particular, should be shared
using predefined portion. They are 20 % for Central Government and 80 % for the mining
origin (provincial government and regency and/ or city government).
Passingly, the more specific explanation about revenue (DBH) from mining sector is
discussed in article 17 paragraph 1 and detail mentioned in article 14 point c. Those provide
3 types of mining revenues for instance: fixed contribution (land rent) as well as exploration
dues and exploitation dues (royalties) which are in line with article 160 of UU No. 32/ 2004.
Furthermore, as explained in paragraph 2 and 3, the distribution of mining revenue would
be:
1. 16 % land rents for province of mining origin, 64 % land rents for regency/ city of mining
origin (paragraph 2).
2. 16 % royalties for province of mining origin, 32 % royalties for regency/ city of mining
origin, and 32 % for regency/ city of non-mining origin in the same province (paragraph
3).
UU No. 33/ 2004 also explains in detail how the other revenue sharing is applied. Article 12
paragraph 1 states that the PBB and BPHTB are distributed between central, provincial, and
regency and/ or city governments. Paragraph 2 states that 90 % DBH from PBB is distributed
to resources origin using these proportions below:
1. 16.2 % is for the province origin and transferred to provincial public treasury account
2. 64.8 % is for the regencies/ cities origin and transferred to public treasury account at
regency/ city level.
3. 9 % is for the collection fee.
Paragraph 3 of the same article explains that 10 % of government portion from PBB revenue
distribute to regencies and cities based on PBB realization using formula as follows:
1. 65 % is evenly distributed to regencies and cities.

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2. 35 % is distributed as the incentive to regencies and cities if the previous year’s
realization exceeds the revenue target.
Paragraph 4 explains about the portion of DBH from 80 % BPHTB revenue using a formula of
sharing as follows:
1. 16 % is for province of origin and transferred to public treasury account at province
level.
2. 64 % is for regencies/ cities of origin and transferred to public treasury account at
regency/ city level.
Paragraph 5 mentions 20 % of government portion from BPHTB revenue is evenly
distributed to all regencies and cities. Paragraph 6 of article 12 is having a further
explanation on PBB and BPHTB distribution as mentioned in paragraph 3 and 4 which is in
line with regulations.
Another DBH revenue is Pajak Penghasilan (PPh/ income tax) which can be found in article
21, article 25, and article 29. As explained in article 29, PPh is the income tax that can be
charged to individual, company and legal entity. The portion for Local Government level is
20 % from total PPh revenues at the certain province. This means another 80 % would be
delivered to state government (see article 21 which is in line with article 11 paragraph 2
point c). The 20 % PPh delivered to Local Government then should be shared to regency/
city and province with percentage rate respectively 60 %: 40%. The distribution of the PPh
would be carried out in every three months.
The entire explanations about the DBH sharing which are related to mining (coal in
particular) can be seen in table 5. However, the regulation of PBB and BPHTB in UU No. 33/
2004 was then revised by UU No. 28/ 2009 about Local Tax and Retribution. Article 2
revised the portion become 100 % distributing to Local Government.

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Table 5.
DBH Sharing of Mining Sector Based on UU No. 33/ 2004
Sharing Revenue
Allocation Portion
Central
Government
Local Government
Province
Regency/
City
other
PBB
(
Land and Building
Tax).
10
%
90
%
This
10
%
is
the
redistributed
to regency
and/ or City
16
%
64.
8
%
9
%
for collection
fee
BPHTB (Value Added Tax
on Goods and Services )
20
%
16
%
64
%
P
Ph
(
Income Tax
)
80
%
20
%
40
%
60
%
Mining Revenue
20
%
80
%
-
Fixed
Contribution/Land rent
16
%
64
%
-
Exploration Dues &
Exploitation Dues
(Royalty)
16
%
32
%
32
%
for regency/
city of non-mining
origin at the same
province
Controversial mining on protected forests: The impeachment of UU No. 41/ 1999
UU No. 41/ 1999 on forestry has been a controversy since its first launch. As mentioned
above, the rapid making process has led to scepticism. This due to several points contained
in articles were considered weak which one of them is the lack of strong articles supporting
law enforcement in tackling illegal logging. For example, the object of law enforcement is
still difficult to be penetrated since it is not specifically regulated by this law. The object in
question is the actors involved in illegal logging such as intellectual actors, especially timber
brokers, government officials, law enforcers, civil servants not specifically regulated in this
law.
Howsoever, a term of mining restriction on protected forests was widely accepted among
environmentalist, conservationist, ecologist, and other stakeholders who stand for
protected areas sustainability. This restriction is explicitly defined in article 1 point f and
article and article 38 paragraph 3 as follows:

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“Protected forests are forest areas that have the basic function of protecting
life-support systems to maintain water systems, prevent floods, control erosion,
prevent sea water intrusion, and maintain soil fertility.”
“Protected forest areas are prohibited from mining with open mining patterns.”
Yet, on the other hand, this mining restriction has also stimulated to different appreciation
from old mining-stakeholders which most of them are still holding mining contract under
the previous CoW before the establishment of UU No. 41/ 1999. As known, there were 150
companies demanded to be allowed to continue mining activities in protected forests.
According to Arizona (2008), the companies eventually threatened to take the mining-ban
case to the International Arbitration Court because there was no legal certainty for them.
To cope this situation president Megawati, then, issued a PP No. 1/ 2004 to add the
transitional rule on UU No. 41/ 1999. This was aimed to amendment article 83 A which
provide legal certainty to mining companies exploiting protected forests. Licenses or mining
agreements located in existing forest areas prior to the enactment of UU No. 41/ 1999
might continue to conduct mining activities in protected forests until the contract expires
(Kristianto, 2014). The concept of article 83 A can be seen as follows:
“All the mining licenses or agreements in protected forests that have been
existed since before the establishment of UU No. 41 / 1999 are still applied until
the expiry of the license or agreement”.
As predicted before, this PP was also declined by many stakeholders. This was considered
full of political order and seen to take sides to the companies rather than ensure the
ecology sustainability. Further, this PP seemed to “against” an UU which should actually be
higher than PP. The third reason is that the PP was launched without Parliament’s
assessment. At this point, Parliament stated their objection on the PP establishment.
Surprisingly, only in 62 days, the president released another Keppres No. 41/ 2004
22
about
mining licenses or agreements in forest areas. There were merely 13 companies that were
22
Presidential Decree

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allowed to continuing their mining activity in protected forests. This Keppres was made
even before the Parliament’s agreement
23
. Nonetheless, this PP was then discussed in
Parliament at the beginning of transition period. The Parliament then changed their
objection into an endorsement. They were then agreeing UU No. 19/ 2004
.
Shortly, this PP
incarnated to a new law, namely UU No. 19/ 2004.
Table 6 provides the list of 13 companies that were allowed to keep their mining licenses or
agreements on continuing mining activities in protected forests. In term of coal mining,
there are two coal companies recorded on this list such as Indominco Mandiri and Interex
Sacra Raya.
Table 6. List of 13 Companies Allowed to Continuing Mining Activity in Protected Forests
under UU No. 19/ 2004
N
o
License/
agreement
Date of
signature
Types
of CoW
Company
Mineral
Activity
Location
Area
(Ha)
Province
Regency/
Munipality
1
82/EK/KEP/4/1967
7 April 1967
7 April
1967
KK
24
G-I PT.
Freeport
Indonesia
Copper,
gold, and
its
derivativ-
es
Production Papua Mimika 10,000
B-392/Pres/
12/1991
26 December 1991
30
December
1991
KK G-V PT.
Freeport
Indonesia
Copper,
gold, and
its
derivativ-
es
Exploration Papua Mimika, Paniai,
Jaya Wijaya,
Puncak Jaya
202,950
2
B-121/Pres/9/71
22 September 1971
4 October
1971
KK G-II Karimun
Granit
Granite Production Kepulauan
Riau
Karimun 2,761
3
B-745/Pres/12/1995
29 December 1995
15 January
1996
KK G-II INCO Tbk Nickel Production South
Sulawei,
Central
Sulawesi,
South East
Sulawesi
North Luwu,
Kolaka, Kendari,
Morowari
218,528
4
097B/Ji.292/U/1990 5 October PKP2B
25
Indominco Coal Production East East Kutai, 25,121
23
According to Arizona (2008), this is suspected that there are many irregularities, especially the changes in
parliamentary attitudes.
24
KK (Kontrak Karya) is CoW for mining concession; “G” represents Generation of CoW.

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5 October 1990 1990 G-I Mandiri Kalimantan Bontang
5
1053
K/20.13/MPE/1997
9 July 1997
9 July 1997 KP Aneka
Tambang
Tk (A)
Nickel Production North
Maluku
Central
Halmahera
39,040
6
B-43/Pres/11/1086
6 November 1986
2
December
1986
KK G-IV Natarang
Mining
Gold, and
its
derivativ-
es
Construction Lampung South
Lampung,
Tanggamus,
West Lampung
12,790
7
B143/Pres/3/1997
17 March 1997
2 April
1997
KK G-VI Nusa
Halmaher
a Minerals
Gold, and
its
derivativ-
es
Production,
construction
, exploration
North
Maluku
North
Halmahera,
West
Halmahera
29,622
8
B-53/Pres/I/1998
19 January 1998
19
February
1998
KK G-VII Pelsart
Tambang
Kencana
Gold Exploration South
Kalimantan
Kotabaru,
Banjar, Tanah
Laut
201,000
9
850/AI/1997
20 November 1997
20
November
1997
PKP2B
G-III
Interex
Sacra
Raya
Coal Pre-
Assessment
East
Kalimantan
, South
Kalimantan
Pasir, Tabalong 15,650
10
B-53/Pres/I/1998
19 January 1998
19
February
1998
KK G-VII Weda Bay
Nickel
Nickel Exploration
(Detail)
North
Maluku
Central
Halmahera
76,280
11
B-53/Pres/I/1998
19 January 1998
19
February
1998
KK G-VII Gag Nikel Nickel Exploration
(Detail)
Papua Sorong 13,136
12
B-53/Pres/I/1998
19 January 1998
19
February
1998
KK G-VII Sorkmas
Mining
Gold, and
its
derivativ-
es
Exploration
(Detail)
North
Sumatra
Mandailing
Natal
66,200
13
1170/20.01/UPG/19
99
7 September 1999
7
September
1999
KP Aneka
Tambang
Tbk (B)
Nickel Exploration
(Detail)
South East
Sulawesi
Kendari 14,570
Source: Arizona (2008)
2.2.2 Period 2: From Susilo Bambang Yudhoyono to the present reign
2.2.2.1 The Year of 2007: energy, investment, and mining corporation
There was a transitional period in early SBY
26
presidency if we want to look at the regime of
mining. We position UU No. 4/ 2009 as the bridge between old and new mining regime.
Thus, we decide to separate into two discussions; 1) situation before the establishment of
UU No. 4/ 2009 which what so called transitional period and 2) situation when the new
mining regime has been born (after the establishment of UU No. 4/ 2009). Both of them are
under SBY presidency. However, we also add another discussion of energy issue related to
25
PKP2B is CoW for coal conssesion. In several English papers, PKP2B is also named CCoW short for Coal Contract
of Work.
26
SBY is a nickname of president Susilo Bambang Yudhoyono

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electrification policy beyond. This is briefly discussed about the dynamic electrification
regulation after the UU No. 4/ 2009 establishment.
SBY was likely to start his reign in proper steps. To begin with, the year of 2007 could be
called as a transitional period when he prepared a huge modification on the law of
Investment and initiated two new laws of Energy UU No. 30/ 2007 and Limited Liability
Company UU No. 25/ 2007. This period is actually a transformation phase to the new mining
regime.
The law of Investment was previously separated into two different UUs such as UU No. 11/
1970 about Foreign Investment and UU No. 12/ 1970 about Domestic Investment. Yet in
2007, they were replaced in one law; UU No. 25/ 2007, which contains all the investment
scheme of either international or domestic. The regulation unification is caused by the
reason that the old law is no longer appropriate to the needs of the acceleration on
economic and national law development, especially in term of the investment. In
accordance with those considerations, the GoI established UU no. 25/ 2007 without
separating foreign investment and domestic investment. Thus, since then, both foreign and
domestic investments have been having the same priority and position in investment view.
On the other hand, UU No. 30/ 2007 about energy and UU No. 40/ 2007 about Limited
Liability Company are two laws that have a strong relationship with UU No.25/ 2007. If UU
No. 25/ 2007 were prepared as the “runway”, then the law of Energy has been set as the
“direction”, and law of Limited Liability Company was created as the “plane”.
Unsurprisingly, hence, the investment executants are always associated with energy market
which most of them are required to be in the form of Limited Liability Company.
UU No. 30/ 2007 put energy as the crucial issue. A condition of energy crisis and emergency
was pushed as the main trigger why a law of Energy should be made. A program of National
Energy Security was then arranged to meet this situation. Furthermore, a National Energy
Council was also created to oversee the implementation of energy policy as well as to
ensure energy reserves for national energy security.

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By riding on energy issues, the investors (both international and domestic) under limited
liability company scheme are invited to invest. A “limited liability company” structure was
prioritized as one condition of requirements for capital investment in Indonesia. This is
acknowledged since this structure is more qualified than other legal entities. An article No.
5 of UU No. 25/ 2007 supports this condition:
“Foreign investment shall be in the form of a Limited Liability Company
(Perseroan Terbatas/ PT) under Indonesian law and domiciled within the
territory of the Republic of Indonesia unless otherwise provided by law”.
Specifically, according to article 1 UU No. 40/ 2007, a Limited Liability Company is a legal
entity based on the capital alliance, established by agreement, conducting business activity
using shares as the capital. Compared to other legal structures, a Limited Liability Company
is also more independent in legality. As a capital alliance, this company allows the
shareholders to release their sharing to other parties. Another advantage, the system of this
company does not require private/ personal property as the risk factor. Thus, the
shareholder liability is only limited to the share value.
Basically, there is no difference on policy making between SBY reign and Megawati reign
which, however, SBY (during the transitional period) has made a strong anchor in bringing
the privatization issue in a polite and smooth way compared to Megawati. Particularly in
coal mining, this reign –through these anchor laws, was also marking the transformation of
coal; from commodity minded to energy sources (Anonymous, 2016; Setiabudi, 2015
27
).
Another anchor law of Spatial Planning (RTRW)
At any rate, there is another law of Spatial Planning UU No. 26/ 2007, which also has the
contribution to mining sector. This is strategic and crucial since some articles regulate the
determination of mining area zone, which is put as part of National Spatial Planning
(Rencana Tata Ruang Wilayah Nasional/ RTRWN). There are 2 areas of mining under RTRWN
perspectives such as mining cultivation area and mining-based national strategic area.
27
Presented at “Seminar Prospek Pertambangan Mineral dan Batubara” in Jakarta, 28 January 2015

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UU No. 26/ 2007 was then UU No. 24/ 1992. Some points of change are recorded. The
previous law is more centralistic. Central Government appoints the regulation of spatial
planning, yet it is impossible to be implemented at the lower level such as province and
regency/ city. Also, the point of law enforcement could not be found in this law.
The new UU No. 26/ 2007 provides more specific articles about spatial planning (Rencana
Tata Ruang Wilayah/ RTRW). The RTRW scheme is suggested to be designed and discussed
at Province and Regency/ City Government. This means each region has spatial planning
where all of them are integrated. Both RTRWs (at province and regency/ city level) are then
submitted and proposed to be drafted as Perda. This needs public participation during the
making process; from drafting process to implementation process. Moreover, spatial
planning is a consensus, that is, all those who will take advantage of that space must
participate in consensus processes. Whether it's the government sectors, the business
sectors, or local community must have the same opinion on it.
In principle, the regulation of the mining area could not heed the RTRW regulation as has
been set forth in this law. The mining area must meet the special criteria for the mining
industry. Under any condition, UU No. 26/ 2007 is later influential toward mining regime
under UU No. 4/ 2009. Thus, we put this law as one of the 5 governance regime related to
mining in Indonesia.
2.2.2.2 The Year of 2009: The birth of new mining regime UU No. 4/ 2009
The transformation of mining license and the optimization on domestic coal demand
UU No.4/ 2009 brings a new view of mining regime, especially on mineral and coal permit
after more than four decades. Before the establishment of this law, SBY has made 3
strategic laws on Investment, Energy, and Limited Liability Company which (allegedly) are
intentionally made to strengthen this new law. However, the realization of UU No. 4/ 2009
has been long in the making process. Since June 2005, the discussion on the draft has been
stuck on the tough debates at Parliament. Only later in December 2008, the Parliament
(DPR) approved the new direction of the mining regime adopted by this law (Jaweng, 2009).
In addition, on 12 January 2009, President SBY signed and passed this law.

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Compared to UU No. 11/ 1967, UU No. 4/ 2009 has a different perception on mining
management. There are considerable paradigmatic changes in ruling mineral and coal
mining, notably on permit issue (Direktorat Jenderal Mineral dan Batubara, 2014; Indonesia
Coal Mining Association (ICMA-APBI), 2016; Junita, 2015; Lucarelli, 2010; Rosyid & Adachi,
2016). Under this law, coal has been excluded from the term of mineral. Although in the
previous mining regime, the contract for coal was also separated from other mining
contracts, the current regime is suspected having the intention to prioritize coal as the main
commodity of mining. Regardless –according to Jaweng (2009), table 7 notes several points
marking the changes promoted by this law.
Table 7. Points of Comparison between UU No. 11/ 1967 and UU No. 4/ 2009
Sub
j
ect Matter
UU No. 11
/ 1
967
UU No. 4/
2
009
1.
Title
Basic Provisions of Mining
Mineral and Coal Mining
2.
Right State
-
Ownership
Principle (Hak Penguasaan
Negara/ HPN)
The authorization of minerals is
carried out by state (article 1)
-
The mineral and coal
authorization is carried
out by state, organized by
Central Government and/
or Local Government
(article 4)
- Central Government and
Parliament set a policy on
mineral and coal
prioritization for national
interests (article 5)
3.
Classification
Mineral classification:
strategic, vital, non- strategic/
non-vital (article 3)
-
Mining business
classification: mineral and
coal
- Mineral mining group:
radioactive, metals, non-
metals, rocks (article 34)
4.
Management Authority
-
Mineral strategic (class
A) and vital (class B)
maintained by Central
Government
- Non-strategic and non-
vital mineral
maintained by Local
Government (either
Provincial Government
or regency/ City
-
21 authorities at Central
Government
- 14 authorities at province
government
- 12 authorities at regency/
City government
- (article 6-8)

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government) (article 4)
5.
Mining Area
(
Wilayah
Pertambangan/ WP)
It is not explicitly regulated,
except that the mining
business is not allowed in a
shrine, a grave, a building, etc.
(article 16 paragraph 3)
-
Mining A
rea
(WP) is
part
of national space, set by
Central Government
based on coordination
with Local Government
and consultation with
Parliament (DPR) (article
10)
- Mining Areas (WP)
consist of: Mining
Business Area (Wilayah
Usaha Pertambangan/
WUP), Community Mining
Area (Wilayah
Pertambangan Rakyat/
WPR), and State
- Reserve Area (Wilayah
Pencadangan Nasional/
WPN) (article 14-33)
6.
Business Legality
Contract regime (article 10 and
article 15 such as:
- Contract of Work
(Kontrak Karya/ KK)
- Mining Authorization
(Kuasa Pertambangan/
KP)
- Local Mining License
(Surat Izin Pertambangan
Daerah/ SIPD)
- Community Mining
License (Surat Izin
Pertambangan Rakyat/
SIPR)
-
License (permit) regime
(article 35) such as:
- Mining Business License
(Izin Usaha
Pertambangan/ IUP)
- Community Mining
License (Izin
Pertambangan Rakyat/
IPR)
- Special Mining Business
License (Izin Usaha
Pertambangan Khusus/
IUPK)
7.
Business Steps
There 6 steps, consequently in
6 types of Mining
Authorization (KP): general
inquiry, exploration,
exploitation, processing and
refinery, transportation,
trading (article 14)
-
There 2 s
teps,
consequently in 2 levels
of permit:
- Exploration, including:
general inquiry,
exploration, and
feasibility assessment
- Production operations,
including: construction,
mining, processing &
refinery, hauling
(transportation) & trading
- (article 36)

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8.
Inves
tor Classification &
Type of Business Legality
-
Domestic Investor
(Penanaman Modal
Dalam Negeri/ PMDN)
such as: KP, SIPD, PKP2B
- Foreign Investor
(Penanaman Modal
Asing/ PMA) such as: KK,
PKP2B
-
Mining Business License
(IUP) for legal entity
(PMA/ PMDN),
cooperative, individual
(article 38)
- Community Mining
License (IPR) for local
community, cooperative
(article 67)
- Special Mining Business
License (IUPK) for
Indonesian legal entity,
prioritizing for BUMN/
BUMD (article 75)
9.
Obligations of Business
Actors
-
Fina
ncial obligation for
state:
• For KP holders, the
financial obligation must
be paid in the form of
fixed contribution and
royalty
28
• KK/PKP2B as mentioned
in the contract scheme
has financial obligation
such as: KK must pay
fixed contribution and
royalty; and PKP2B must
pay fixed contribution
and Coal Production
Fund (Dana Hasil
Produksi Batubara/
DHPB)
29
- There is no regulation on
environmental
responsibility,
partnership/
collaboration with local
business actors, local
community involvement
as business workers,
community
empowerment program
-
Financial obligation for
state: tax and non-tax
revenue. Especially for
IUPK holders, there is
another payment from
10% of net profit
- Payment for
environmental
responsibility:
conservation, reclamation
(article 96-100)
- Payment for national
interests: processing and
refinery at domestic level
(article 103-104)
- Local workers,
participation scheme with
local business actors, and
community
empowerment program
(article 106-108)
- Collaboration scheme
with mining services at
local and/ or national
level (article 124)
10.
Guidance and Supervision
Monitoring on KK, KP, and
PKP2B holder is controlled by
-
Central government
should monitor the
28
Based on PP No. 45 Year 2003 about Non Tax Revenue
29
Based on Keppres No. 75 / 1996 about provisions of PKP2B

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Central G
overnment
government at province
and regency/ City level on
mining authorization and
management
- Both Central Government
and Local (either province
and regency/ city)
Governments should
monitor the IUP holders
- Regency and/ or City
Government should
monitor the IPR holders
- (article 139-142)
11.
Transiti
onal Provisions
(related to legal status of
existing investment)
Based on article 35
30
:
All
mining rights and KP of a state-
owned enterprise (BUMN),
private sector, other entity or
individual prior to the date of
the establishment of UU No. 11
/ 1967, might continue the
activities to the extent of its
validity, unless there is another
determination by PP issued
pursuant to this Law
-
Based on article 169
31
:
- KK and PKP2B are still
allowed to continue the
mining activities until the
expired date on the
contract
- The provisions contained
in the KK and PKP2B
articles shall be adjusted
no later than 1 year after
this law is enacted,
except on the state
revenue article.
Source: Jaweng (2009)
Those points above illustrate the new priority carried out by UU No. 4/ 2009. There seemed
to be a need for a law that looked at almost all aspect of the ideal mining regime. Paired to
various regulation on natural resources, mineral and coal have certainly indicated state’s
interest in keeping mining for economic development.
Nevertheless, the rational progress on mining should be briefly highlighted. Some
commentaries stimulate several eloquent explanations behind nowadays mineral and coal
regulation and its point of change compared to the previous regime. First, as has been
30
This article bridges the transitional regime of mining between Old Order with KP holder such as BUMN as the
mining executants and New Order with investment scheme using contract scheme. Thus, the KP holders under Old
Order reign were allowed to continue the mining activities until the end of the KP’s period.
31
This article bridges the transitional regime of mining between New Order with KK and PKP2B holder under
contract of work scheme and new regime under UU No. 4 Year 2009 with mining license scheme. Thus, the KK and
PKP2B holders under were still allowed to continue the mining activities until the end of contract. However, for
those who are still holding long-term contract, a renegotiation scheme should be applied.

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briefly discussed above, the mining perspective is changed into energy minded. Particularly,
coal is now projected to be optimized as one of the energy sources at domestic level. This is,
later, proven on the policy of Strategic and Plan Action 2015-2019 (Direktorat Jenderal
Mineral dan Batubara, 2014, 2017). The decrease of coal demand at the international
market
32
and the rising of energy issue
33
lead to an improvement on the domestic market
strategy called DMO (Domestic Market Obligation) (through PP No. 23/ 2010 and Permen
No. 34/ 2009)
34
. This would require coal producers to prioritize coal supply for among
others power plants, cement producers, fertilizer, and textile before making export
(Indonesia Coal Mining Association (ICMA-APBI), 2016). The further discussion on coal for
electrification could be seen on the other sub-section below.
Source: Analysed data from BPS (Central Bureau of Statistic)
Figure 2. Indonesia Coal Export 2002-2015
32
since 2014 (see figure 2)
33
that has been “set up” during transitional period (under UU No. 30/ 2007)
34
Ministry Regulation

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Second, the mining authorization has been transformed. UU No. 4/ 2009 positions GoI as
the regulator. GoI is ultimately no longer parallel to the business actors based on the
changes of contract system and agreement into a licensing system
35
. Since then, the GoI has
been the one who fully granted mining license without two-way negotiations. Contract
system under KP, KK, and PKP2B schemes were then converted to Mining Business License
(IUP).
Third, as the mining permit is changing –from contract scheme to license, the new era of
mining regime is coming. This is also well known as IUP regime. The IUP has been a signal of
the permit transformation (Nalle, 2012). There are three types of mining license based on
UU No. 4/ 2009.
1. Mining Business License (IUP) is granted to legal entity (PMA/ PMDN), cooperative, and
individual;
2. Community Mining License (IPR) for local community and cooperative in a very small
area of less than 10,000 hectares; and
3. Special Mining Business License (IUPK) is granted to Indonesian legal entity, yet
prioritizing for BUMN/ BUMD (see also table 6, number 6, 7, and 8).
Both IUP and IUPK have two types licenses based on the mining activity such as
exploration
36
and production operation. Thus, there will be IUP exploration, IUP production
operation, IUPK exploration, and IUPK production operation. In term of IUPK, if there are no
government entities interested in developing these special mining areas, the MoEMR is
then free to offer them on a competitive tender basis to private companies (Lucarelli, 2010).
35
In contract regime, the position of GoI was ambiguous; could be either regulator or contractor. As a regulator,
the GoI is able to rule and monitor the mining management that also grants mining license to investors. However,
in fact, as a contractor, the GoI should not govern the party who is under contract due to the parallel position. The
applications of law, legal certainty, as well as the determination of rights and obligations are based on mutual
agreement.
36
According to Lucarelli (2010):
“Exploration permits can only be issued through a transparent commercial tender. However, once a
company is awarded such a permit, it is guaranteed the right to an IUP Operasi Produksi (production
operation permit) without needing to go through a new tender as long as it has fulfilled the terms of its
exploration permit”.

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Furthermore, there is another interesting discussion on renegotiation issue related to legal
status of existing investment. Although an article No. 169 guarantee the continuity of old
permit scheme under KK and PKP2B, the intention of renegotiation on mining license has
been also encouraged
37
especially for ongoing long-term contract (see table 6, number 11).
Government as the principal merely monitor the KK and PKP2B holders to continue mining
activity if the contract is almost expired. Yet, an updated rule of state revenue must be
obeyed in order to improve national income. Furthermore, a (full) renegotiation should be
applied for those who are still hold long-term contract. This provision should be realized in a
year after the law establishment (Direktorat Jenderal Mineral dan Batubara, 2014, 2017;
Direktur Jenderal Mineral dan Batubara, 2014)
38
. The (full) renegotiation would be based six
issues such as: state revenue, mining license, mining area, the obligation in using domestic
product, divestment, and smelter development (Direktorat Jenderal Mineral dan Batubara,
2014).
At any rate, different opinion is expressed by Junita (2015). Paragraph a of article 169 UU
No. 4/ 2009 clearly provides that all the permits and contracts which have prevailed
previously must be respected.
“In principle, the CoW is a legally binding agreement. It has a binding effect on the
contracting parties. This means that each contracting party cannot amend the
contract without the prior consent of the other party. Therefore, those contracts of
works (KK and PKP2B) have ensured very strong laws that provide sufficient
protection for every foreign investor to avoid any additional levies that are
unpredictable before the expiration of the contracts unless there is consent from the
other contracting party.”
39
However, paragraph (b) of Article 169 provides:
37
See also at point b of article 169, UU No. 4/ 2009
38
According to Direktorat Jenderal Mineral dan Batubara (2014) and Lucarelli (2010), until the end of 2014, there
are 106 companies which have been processed on renegotiation scheme using Memorandum of Understanding
(MoU). They are consisting of: 33 KK holders, 73 PKP2B holders, 1 amendment KK holder, 25 KK holders and 61
PKP2 holders who are already partially agreed and signed on MoU, as well as 7 KK and 12 PKP2B who are still
already partially agreed on MoU.
39
Junita(2015) also states that this is basically based on the principle of pacta sunt servanda. This means that all
valid contracts are deemed binding to the contracting parties as the law.

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“The provisions contained in the Contract of Work (KK) and PKP2B referred to in
paragraph (a), must be adjusted no later than 1 (one) year from the promulgation of
this Law.”
As a result, renegotiation is still challenging. This has led to some problems and created
legal uncertainty for investors. Moreover, the absence of guidelines brings this
renegotiation difficult to implement.
Fourth, in line with law of Spatial Planning UU No. 26/ 2007, then UU No. 4/ 2009 also set
classification for mining area (see table 6, number 5). Based on article 14-33, mining area
can be of three types:
1. Mining Business Area (Wilayah Usaha Pertambangan/ WUP), which are areas open to
private businesses based on a competitive tender;
2. Community Mining Area (Wilayah Pertambangan Rakyat/ WPR), which are reserved for
community mining activities; and
3. State Reserve Area (Wilayah Pencadangan Nasional/ WPN), which are areas reserved
for the strategic national interest and reserved for government-owned corporations
(Awaliyah, 2014).
Mining Area (WP) is part of national space, set by Central Government based on
coordination with Local Government and consultation with Parliament (DPR) (see article
10). The entire mining permit should be aligned with the RTRWN in order to minimize the
overlapping permit among mining companies.
In term of determining State Reserve Area (WPN), several considerations must be taken into
account. They are can be varied from the consideration of future generation, the
prioritization of domestic needs, and conservation issues on mining activities.
Fifth, the term of divestment is also encouraged by this mining regime. Based on article
112, after 5 years commencing production, the IUP and IUPK holders -which are under PMA
scheme or most of the share owned by foreign investors, must conduct divestment to GoI,
Local Government, BUMN/ BUMD, and or domestic private company. This divestment is

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mandatory. This is intended to protect national ownership in the mining industry and to
maximise state revenue for people’s prosperity as mandated by article 33 paragraph 3 UUD’
45. Technology transfer and capacity-building process are expected during the
implementation of divestment.
However, this has been controversial since it is expected as silent nationalization agenda
that is not in line with the law of Investment UU No. 25/ 2007 (see article 7). Moreover, the
limitation of company share has not been provided in this UU. Thus, in some cases, the
divestment has led companies to distraction due to the short period of divestment
establishment (5 years). This also reflects the unpreparedness of mining stakeholders’
notably foreign companies in performing divestment.
Sixth, the issue of smelter development is follow up by article 95-point c, article 102, article
103 paragraph 1, and article 170 of UU No. 4/ 2009. The smelter is projected to increase
value added on mineral and coal (Direktur Jenderal Mineral dan Batubara, 2014). In order to
further this program, an export ban of raw minerals is imposed. This is accommodated by
PP No. 7/ 2012. The basic idea of this regulation is to promote in-country beneficiation of
mineral commodities prior to export. At Government Regulation level, since 2009, there
have been several technical regulations on value added improvement (see figure 3). At
present PP No. 1/ 2017 is set as the guidance regulation in establishing smelter.
However, Supreme Court (Mahkamah Agung) cancelled the regulation of export banning on
the raw mineral. This regulation was also amended by Permen ESDM No. 11/ 2012 about
Procedures and Requirements for the Implementation of the Recommendations of Mineral
Export, Processing and Refining of minerals. An insertion article 21 A of this regulation
ensures the continuity to provide export licences of raw material or ore to a number of
mineral mining companies starting from 2014 to 2017. Accordingly, this is inconsistency
with the implementation of the smelter development.

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UU No. 4/ 2009 on
Mineral and Coal
Mining
PP No. 23/ 2010 on
Mineral and Coal
Mining Implementation
PP No. 1/ 2014 juncto
PP No. 23/ 2010
(second amendment)
PP No. 1/ 2017 juncto
PP No. 23/ 2010
(fourth amendment)
- Article 103: IUP/ IUPK
production operation
holders must establish
refinery (read: smelter) at
domestic level
- Article 170: KK holders
must establish refinery
(read: smelter) at
domestic level in 5 years
after production
The implementation in
establishing refinery
(smelter) for IUP/ IUPK
holders which were KP
holders. The due of this
implementation would be
expired on 12 January
2014
The implementation in
establishing refinery
(smelter) for IUP/ IUPK
holders which were KP
holders. The due of this
implementation would be
expired on 12 January
2017
- PP No. 1/ 2017 about
the fourth amendment on
PP No. 23/ 2010
- Permen ESDM No. 5/
2017 on the improvement
of mineral and coal value
added through refinement
- Permen ESDM No. 6/
2017 on procedure and
requirement of export
recommendation granting
2009 2010 2014 2017
Source: Direktorat Jenderal Mineral dan Batubara (2017)
Figure 3. The Dynamic Regulation on Refinery for Mineral and Coal
Seventh, UU No. 4/ 2009 has mandated monthly-reference coal price. Through PP No. 23/
2010, a mechanism of Indonesian Coal Price Reference (ICPR) has been successfully
released. Then on 23 September 2010, the Ministry of Energy and Mineral Resources issued
Permen No. 17/ 2010 as an official regulation on the procedure for setting Mineral and Coal
Benchmark Selling Price. Those, together, regulate the ICPR mechanism that follows a
methodology in allowing price adjustment based on differences of heating values and
weighted average-heating value.
According to Lucarelli (2010):
“The ICPR for any coal will be calculated each month in two steps. First, the
Ministry of Energy and Mineral Resources will calculate the simple average of
four independent index prices:
(a) the Barlow Jonker Index (now called the NEX index), which reports spot
prices for Newcastle grade coal;
(b) the global COAL Newcastle Index (gcNEWC), which is also a Newcastle
linked spot price index;

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(c) the Platts Indonesia Coal Index (ICI) for spot sales of coal with a Calorific
Value (CV) of 5900 kcal/kg; and
(d) the ICI 6500, which is produced by Argus Media in partnership with an
Indonesian organization called Coalindo, for spot sales of coal with a CV of
6500 kcal/kg.
After establishing this benchmark price, reference prices are then calculated for
eight reference coals, which represent more than 80 percent of the coal that is
currently being produced in Indonesia. The formulas for calculating the
reference prices for these eight coals adjust the simple average benchmark price
for CV, moisture, sulphur, and ash. Coals not represented by these eight coals
are allowed to adopt other specific equations provided on the Ministry of Energy
and Mineral Resources website”.
However, the implementation of this policy is therefore predicted with the significant risk of
harming Indonesia‘s price competitiveness for low-rank coals.
Eighth, referring to terms of environmental principle that must be approach by mining
regime
40
, the coherent exegesis is incisively systematized in a UU No. 32/ 2009 about
environmental protection and management (see Figure 1). This UU, interestingly, is not only
about environment management in general, but –especially in mining business, also
regulate company to implementing the environmental principle during their extraction
process. Starting from the beginning, this UU provides schemes of environmental
assessment as one of permit requirements (see Figure 2). At a further process, other
environment-based mechanisms are suggested to guide the company in order to adopt
environmental principle to their business activity. The mechanisms are varied from waste
management as well as environmental-economy instrument, to environmental dispute and
its law enforcement. Simply, this mining regime is requiring environmental principle to
contribute to conservation and mining monitoring, thus the impact and risk can be
minimized (Direktorat Jenderal Mineral dan Batubara, 2017).
40
See article 141 of UU No. 4/ 2009 and PP No. 55/ 2020 on monitoring and guidance on mineral and coal mining
implementation.

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And ninth, the business activity should promote development and encourage the growth of
the local industry that might support the mining industry. The development should be
sustainable which must also be based on externality principle, transparency, and local
community involvement.
Somehow, this regime has put coal as the prima donna. The coal exclusion from mineral
classification is identified not only based on scientific evidence but also political and
economic demands. As has been generally assumed before, the existence of this regime
should have been influenced and endorsed by other regulation. The emergence of the
energy issue, the re-make of investment regulation and the GoI’s intention in growing coal-
fired power plants are definitely answering the curiosity why coal has been an exception.
2.2.2.3 Energy for Domestic Electrification
If we flash back to 2007, where the issue of energy security drove the investment climate,
then we found out that in 2009 the law of Mining and law of Electricity were intentionally
overhauled to follow the issue. Besides UU No. 4/ 2009 of mineral and coal, the Electricity
Law UU No. 30/ 2009 was also “modified” to welcome the government's program on energy
security. They are created to be synergized each other.
Actually, the energy issue appears due to the growing power (Muchlis & Permana, 2003; PT.
PLN, 2016). It has been echoed since the 1980s, which is also put as part of GoI’s concern.
The first Electricity Law was made in 1985 namely UU No. 15/ 1985. In order to meet the
demands, GOI then invited private power company to invest as Independent Power
Producer (IPP) (PwC Indonesia, 2013). The IPP was licensed to sell power to the only one
buyer –PLN (Perusahaan Listrik Negara))
41
, under an agreement of Power Purchase
Agreement (PPA). At any case, the IPP scheme came to a standstill due to monetary crisis in
the late 1990s. This was when the reform era began.
41
State-owned Electricity Company

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Industry
Public
Small-scale Business
Household
Power demands (TWH)
Source: Muchlis & Permana (2003)
Figure 4. Estimated Electricity Demands 2003-2020
In 2002, we once had another Electricity Law UU No. 20/ 2002. MK (Mahkamah Konstitusi)
then turned this off
42
. This law was recognized more investment minded which was not in
tune with the UUD’45 mandate. This was also expected to eliminate PLN’s main role as the
principal of electricity business.
Three years later, a Perpres No. 67/ 2005
43
was issued. This aimed to bring back the investor
through public-private partnership scheme, yet still hold PLN as the principle. By 2006, PLN
released a fast track 10,000 MW power project (Fast Track Program I/ FTP I) using fired-coal
based. It was targeted to be finished in 2009 that is then predicted not possible to be
realized. Indeed, the project was then extended until 2012. This was later re-extended as of
2015.
However, another new law UU No. 30/ 2009 was then made to –once again, engage private
investor to be involved in the electricity business, which was expected to be aligned with
energy, investment, as well as notably mining regimes. Shortly, other derivative regulations
were made. They are PP No. 14/ 2012 on electricity business provision, PP No. 42/ 2012 on
cross border sale, and PP No. 62/ 2012 on electricity support business, as well as Permen
Ministry of Industry No. 54/M-IND/3/2012 on the guidelines for the use of domestic
42
Constitutional Court
43
President Regulation

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product in the construction of electricity infrastructure and Perpres No. 71/ 2012, provide
the framework for acquiring land for infrastructure projects. Afterward, a RUKN (Rencana
Umum Ketenagalistrikan Nasional)
44
developed by Ministry of Energy and Mineral
Resources, a RUPTL (Rencana Umum Penyediaan Tenaga Listrik)
45
arranged by PLN and a
RUKD (Rencana Umum Ketenagalistrikan Daerah) made by Local Government are provided
as technical documents. Ultimately, those are allied together to actualize the power project.
The second 10,000 MW steam power project (Fast Track Program II/ FTP II) was later
established in 2010 under Perpres No. 4/ 2010 and would be on stream by the end of 2016.
This was not only for coal as the power but also gas and geothermal basis. As predicted
before, this project has been extended as of 2020 due to some delays in exploration and
installation, especially on the geothermal plant. However, some projects are also being
expanded to 17,918 MW.
The current power project namely 35,000 MW using coal, gas, and geothermal as the power
sources has been launched in 2015 under Kepmen ESDM No. 0074.K/21/MEM/2015
46
. This
was targeted to be finished in 5 years in order to enable Indonesia to compete in ASEAN
Economic Community. In fact, it can be seen at once that during this time the progressive
mining policy on DMO is also set:
“Director General of Electricity, at Ministry of Energy and Mineral
Resources said in a press release on September 2015 that it will further
push for the development of coal-fired power plants to increase the coal
portion in the national energy mix to 50 percent in 2025 under which coal
will replace oil fuels in the power generation”.
“To help meet the sustainable supply of coal for domestic market, the
government established a Domestic Market Obligation (DMO) policy that
would require coal producers to prioritize coal supply for among others
power plants, cement producers, fertilizer, and textile before making
export”(Indonesia Coal Mining Association (ICMA-APBI), 2016).
44
National Electricity Plan
45
Electricity Supply Business Plan
46
This is a Ministerial Decree of Energy and Mineral Resources, which is implemented in Joko Widodo Presidency

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The DMO policy is projected to meet the domestic coal demand on power plants (see table
8). It proves the GoI’s strategy in diverting coal sales from export priority to the fulfilment of
domestic needs. The coal producers, including holders of coal contract of work (PKP2B), the
state owned coal miner and mining business permit (IUPs) should allocate the specific
amount coal for the domestic supply before making the export. Currently, DMO policy is
mainly imposed on the low to medium rank coal with calorific value of 4,000-6,500 kkal/ kg
GAR that used in electricity projects and other industries such as cement, fertilizer, pulp,
and metallurgy. Nevertheless, several DMO schemes are still far in the realization due to
some delays on power plants development.
Table 8. Realized DMO in 2011-2015 (in million tons)
No
End user
2011
2012
2013
2014
2015
1
Power
45.12
52.2
61.86
63.05
61.41
2
Cement
5.87
0.32
7.19
7.19
10.54
3
Metallurgical
0.17
0.29
0.30
0.30
3.58
4
Textile
0.19
0.30
1.46
1.46
2.20
5
Fertilizer
0.00
0.87
0.86
0.40
1.31
6
Pulp & Paper
0.00
0.40
0.40
0.86
0.65
7
Briquette
0.00
0.00
0.00
0.00
0.03
51.35
55.00
72.07
73.26
79.72
Source: Directorate General of Mineral and Coal (2016)
in Indonesia Coal Mining Association (ICMA-APBI), (2016)
The GoI plans to improve electrification ratio up to 97.4 % by the end of 2019. The 35,000
MW project would be separated between PLN and IPPs. PLN would be responsible for 9,945
MW, while the 25,584 MW would be took over by IPPs under PPA scheme. As of 2015, coal
has contributed for approximately 50 % of the total installed capacity of power plant (see
table 9). This means, the domination of coal in mining and energy sector is still occurring.

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Table 9. Installed Capacity of Power Plant
201
1
2012
2013
2014
2015
Total Capacity (MW
)
39,899.0
45,253.5
50,898.5
53,065.5
54,488.0
Coal
-
fired PP Capacity
(MW)
16,318.0
19,714.0
23,812.5
25,104.2
25,420.0
Coal Consumption (Mt)
45.12
52.82
61.86
63.05
61.41
Source: Indonesia Coal Mining Association (ICMA-APBI), (2016) and Direktorat Jenderal Ketenagalistrikan (2015)
Coal Mine-Mouth Power Plants
In addition to these electricity policies, another policy on coal mine-mouth power plants for
coal has been seriously considered. According to article 85 PP No. 23/ 2010, a discourse on
mine mouth power plant was discussed in December 2010 (Direktorat Pembinaan
Pengusahaan Batubara, 2014). Mine mouth power plants are believed cheaper than other
coal power plants since the infrastructure could be established in mine mouth area.
Therefore, the operation cost could be definitely minimized.
Furthermore, since the mine mouth is considered should be managed through different
regulation, thus in 2011 a Perdirjen No. 1348/ 2011
47
was released. This regulation was still
ruling on coal pricing for mine mouth power plants. A year later in February 2012, this
Perdirjen was proposed to be revised. Some points of change such as calorie restrictions,
the location of infrastructure, and supply guarantees were made as the reasons for
revisions.
As a result, a more specific regulation on mine mouth power plants namely Permen Ministry
of Energy and Mineral Resources No. 19/ 2017 has been issued on 14 February 2017.
Interestingly, there is a term of separation between mine mouth power plants and non-
mine mouth power plants. This is not only about the provision disseverance. The MoEMR
has already required every power plant in the existing area of mine's mouth to build mine
mouth power plant and no longer allowed to build non-mine mouth power plants. This aims
to keep the electricity cost of supply (Biaya Pokok Penyediaan/ BPP) balance and efficient.
47
Directorate General Regulation

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Therefore, the electricity tariff can be more competitive among power plants
stakeholders
48
.
2.3 Mining Authorization in the Perspective of Fluctuate Local Government Laws
Historical overview on Local Government Laws Vs Mining Laws
There is an intense relationship between mining and government authority, which
respectively formulated in laws such as law of mining and the law of Local Government. On
one hand, the law of Mining regulates the permit regime. On the other hand, the Local
Government Law determines who would be responsible to approve the permit.
So far, Indonesia has had two powerful Mining Laws from 1967 to at present; UU No. 11/
1967 and UU No. 4/ 2009. During that time, there have been five laws of Local Government
affirming the mining management, mainly in confirming government position as the
representative of the state. In the heyday of UU No. 11/ 1967, four different laws of Local
Government (such as UU No. 18/ 1965, UU No. 5/ 1974, UU No. 22/ 1999, and UU No. 32/
2004) have coloured the dynamic mining permit regulation. Moreover, UU No. 4/ 2009 has
merely experienced two changes on Local Government Laws; UU No. 32/ 2004 and UU No.
23/ 2014. The whole (mining and Local Government) regulation bonding and shifting can be
seen in Figure 5.
1. UU No. 11/ 1967 Vs UU No. 18/ 1965; indeed, the first Local Government Law was
made by Old Order namely UU No. 1/ 1945 which has already experienced 3
amendments; UU No. 22/ 1948, UU No. 1/ 1957 and later UU No. 18/ 1965.
Notwithstanding, since we are emphasizing on the UU No. 11/ 1967’s perspective,
therefore UU No. 18/ 1965 would be sole law from Old Order reign to be discussed. To
begin with, in effect, the existence of UU No. 18/ 1965 has been being “ignored” by the
mining regime under UU No. 11/ 1967. It is due to the different view in ruling mining
sector during New Order. UU No. 11/ 1967 was constructed by New Order to create
investment climate in the direction of mining regime. At this time, the government
authority was centralized. The mining regime under contract scheme only allowed the
48
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Central Government as the principal party who had right on conducting negotiation with
mining investors. This is in contrast to the mandate of UU No. 18/ 1965 (issued by Old
Order) that sided with autonomy and decentralization as well as anti-foreign investors.
2. UU No. 11/ 1967 Vs UU No. 5/ 1974; without further explanation, UU No. 5/ 1974 was
proven to be real in line with UU No. 11/ 1967 in term of government authority on the
mining sector. It is clearly centralistic which means the Central Government position
themselves as the highest mining authority.
Nonetheless, UU No. 5/ 1974 still acknowledged autonomy as part of the government
system. Yet, it was only poured on the law since Central Government also maintained
the entire domestic affairs. An article of “granting full autonomy for Local Government”
in UU No. 18/ 1965 has been replaced into “granting a factual and responsible
autonomy”. This is identified as “ultra vires doctrine” since the Local Government
authority is detail arranged by Central Government (John, 2003). This means, the
autonomy has been diverted to half-hearted autonomy, which gradually reveals the true
nature of centralization. Eventually, Local Government is very dependent to Central
Government.

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x
Mining LawsLocal Government Laws
1990 1985 1980 1975 1970 19652005 2000 1995
2015 2010
- Under Soekarno Presidency
- Pro autonomy, yet the head of Local Government is
selected by Central Government. This term is adhered by
Perpres No. 6/ 1959
- The Central Government also has the authority to
suspend the DPRD’s decisions so that this institution has
no role at all.
UU No. 11/ 1967 Vs UU No. 18/ 1965
- The autonomy based on UU No. 18/ 1965 is
“unrecognizable”. The role of Governor and Regent/
Mayor is ignored since the major authority is taken over
by Central Government
- Under New Order
- The autonomy is still kept as the basis of Local
Government authorization, yet very limited in role. This
is adhered by Tap MPR No.IV/ MPR/ 1973
- It can be seen as centralistic authority rather than
decentralization, especially, in ruling natural
resources.
- Under Post Reform Era (Megawati Presidency)
- The autonomy term is still similar with the previous law
- Additional term mentioned on article 57 paragraph 1
about direct election system of head of Provincial
Governments, and Regency/ City Government.
- This is also regulating distribution of governmental
affairs between the Central Government, Provincial
Governments, and Regency/ City Government.
UU No. 4/ 2009 Vs UU No. 32/ 2004
- The first intention issuing UU No. 4/ 2009 is to
rearrange the trouble resulted from localization period.
All the mining permits are then identified and classified
into CnC and non-CnC.
- Based on this mining law, the KK, PKP2B and KP
holders are automatically transformed into IUP.
- Under Reform Era
- This UU mandates the pure autonomy. There are
three essential points related to the mandate. 1)
Central Government should submit domestic issues to
the local government; (2) the Central Government can
concentrate on national macro issues (6 congruent
affairs); and thus (3) local governments can be more
empowered and creative.
- This law is bringing up a term of deconcentration;
where local government authority would be only at
Provincial Government. Since then, Regency and City
Government have no more rights in maintaining their
domestic affairs, including mining sector .
UU No. 11/ 1967 Vs UU No. 5/ 1974
- This new local government law seems in line with the
natural resources management. The authority is fully
controlled by Central Government.
- However, governor of province still has an authority in
maintainingclass C mineral.
UU No. 11/ 1967 Vs UU No. 22/ 1999
- The new local government law enable Local
Government to take care of their domestic affair,
especially in conducting extractive industries . In term of
mining, Kepmen ESDM No. 1453/ 29/ MEM/ 2000 allows
the signature of mining license (such as KP, KK, and
PKP2B) by Head of Local Government, depending on
where the mining area is located. The Central
Government is concerning only on 6 congruent affairs
such as monetary, national fiscal, security, international
affair, justice, and religion.
- Lucarelli (2010) calls this era as lo calization period.
This is due to the “sale” of KPs to PMDN holders.
- However, this is contradictive compared to existing
mining law (UU No. 11/ 1967), where the Central
Government is the authorized state representative who
has rights in releasing mining permit.
- Carrying the
principle of
nationalization . The
Dutch companies are
the first target to be
nationalized.
UU No. 11/ 1967 Vs UU No. 32/ 2004
- There is no much difference compared to previous local
government laws. Further, the sale of IUPs is getting
massive, since UU No. 32/ 2004 is actually strengthening
the Local Government authority. This era is still part of
localization period
- As a result, between 2000-2009, there were almost
10.000 KPs granted to local investors (PMDN) by Local
Government.
UU No. 4/ 2009 Vs UU No. 23/ 2014
- In term of government authority, UU No. 23/ 2014 is
issued to balance the new mining law.
- This impacts to the Local Government authority in
mining. The right to issuing IUP for PMDN is belong to
provincial government. The right to issuing IUP for PMA
is belong to Central Government
UU No. 4/ 2009
UU No. 11/ 1967
UU No. 37 Prp/ 1960
UU No. 18/ 1965
UU No. 5/ 1974
UU No. 22/ 1999
UU No. 32/ 2004
UU No. 23/ 2014
Figure 5
.
Overview on Local Government Laws and Mining Laws
3. UU No. 11/ 1967 Vs UU No. 22/ 1999; as has been concisely discussed, UU No. 22/ 1999
is seen as the symbol of reform. The centralized authority was then altered into
decentralization. This implemented residual power principle or open arrangement

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(John, 2003). The Central Government still concentrated on six congruent affairs such as
monetary as well as national fiscal, security, international affair, justice, and religion.
Yet, the domestic affairs were submitted to Local Government. On the other words, the
autonomy is set to be wider, realistic, and responsible. Provincial and regency-city
systems were initiated as autonomy regions. Those regions are not hierarchal related.
This means each region was granted the full authority to maintain maximally funding
source as long as it is legal and accepted by public.
Unfortunately, the term of full authority is misinterpreted. In mining sector, there were
a thousand KPs granted to local investors (PMDN). Besides, the legitimation of UU No.
11/ 1967 still existed, especially in the term of centralization. Yet, it was
unacknowledged since the politic direction has been changed to be more decentralist.
4. UU No. 11/ 1967 Vs UU No. 32/ 2004; UU No. 32/ 2004 suffered a similar fate with
previous Local Government Law. The autonomy principle was still the same. Somehow,
it is important to know that this Local Government Law regulates the direct election
system on Governor, Regent/ Mayor as Local Government leader.
In term of the mining permit, more KPs have been released. The conflict of interest has
been appeared due to overlapped licenses. Vertically, the local community –such as in
South Kalimantan, experiencing the economic gap between social class which is going to
be wider (JATAM (Indonesia’s Mining Advocacy Network), London Mining Network, &
Nostromo Research, 2010). The booming of mining has not contributed to people’s
prosperity.
Though we record that after the issuance of decentralization –during 2000-2009, there have
been almost 10,000 mining licenses released by the Local Government. Lucarelli (2010)
mentioned this period as localization period
49
where most new granted licenses were under
49
Localization period is identified having obscurity in mining policy. The new regime of decentralization is
contradictive compared to the existing mining law. In term of formal juridical, UU NO. 11 / 1967 is still valid.
However, in term of material juridical, UU No. 11 / 1967 is not in accordance with the decentralization spirit that is
carried by UU No. 32/ 2004. Both laws are opposite each other especially on mining authorization (Hayati, 2015).

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KP scheme for domestic investors. This results in a fantastic number –if we compare to the
number of mining licenses before 1999, which accounted for approximately 600 mining
licenses (Hayati, 2015). Several cases have locally occurred at district (regency) level has
been recorded by JATAM (Indonesia’s Mining Advocacy Network) et al. (2010) in East
Kalimantan and South Kalimantan.
“East Kalimantan's Kutai Kertanegara district is rife with coal rush
corruption. Up to 2009, the district had issued 687 KP permits, with 247
permits issued in 2007-2008 alone (or one permit issued every two days)”.
“In South Kalimantan, income generated from extractive industries
dominates the province's GDP. Up to 2008, there were at least 280
companies holding KP permits in the forests covering over half a million
hectares. More companies were in the process of applying for 97 KP
permits and 14 PKP2B contracts of work, covering another 50,279 ha”.
Ultimately, most of them were overlapped and illegitimate which could lead to
environmental degradation, vertical and horizontal conflict, and human right violence
(Solechah, 2012). Hayati (2015) also add that the overlapped licenses stimulate to further
disobedience of KP holders for instance: the avoidance of revenue tax (PNBP) payment, the
out breaking of illegal artisanal mining, watershed destruction, and the low contribution of
social responsibility from KP holders. Hence, UU No. 4/ 2009 was pulled out with the main
message to reorganizing the existing mining licenses.
UU No. 4/ 2009 was then issued to giving way to decentralization in a proper way. This is
created to harmonize UU No. 32/ 2004 in term of mining authorization by Local
government. The KPs that have been issued during localization period was then targeted to
be reorganized. Under the article 169, the KPs, together with KKs and PKP2Bs should be
reregistered into IUPs.
To some extent, Clean and Clear (CnC) is a certification scheme to reorganize the existing
IUPs. This is used to identify whether the license is legal and legitimate or not. The
assessment is ranging from administrative matter, technical affair, finance, to environment

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requirement (Hayati, 2015). Thus, if an IUP could not meet the requirements, this would be
classified as non-CnC IUP. This assessment is also able to map the overlapped IUPs. In the
further step, the CnC would be an obligated requirement to submit a permit process.
As of 2011, there were almost 9.662 IUPs have been identified to reorganize (Hayati, 2015).
They consisted of 3,778 CnC IUPs and 5,884 non-CnC IUPs. Gradually, from December 2011
to September 2012, the non-CnC IUPs were reassessed to see the possibility of transforming
to be CnC. As of 2013, there were 5,956 CnC IUPs and 4,953 non-CnC IUPs from 10,909 IUPS
in total. Moreover, later in 2015, there were 5,999 CnC IUPs and 4,654 non-CnC IUPs from
10,653 IUPs in total. The more detail information can be seen on table 10.
Table 10. Recapitulation of CnC and non-CnC IUPs in 2011-2015
Status
2011
2013
2015
Total
Mineral
Coal
Total
Mineral
Coal
Total
Exp.
PO
Exp.
PO
Exp.
PO
Exp.
PO
Clean
and
Clear
3,778 1,501 2,029 1,457 969 5,956 1,491 2,072 1,394 1,042 5,999
Non
-
Clear
and
Clear
5,884 1,464 1,996 1,083 410 4,953 1,359 1,945 981 369 4,654
Sub
Total
9,662 2,965 4,025 2,540 1,379 10,909 2,850 4,017 2,375 1,411 10,653
Total
9,662 6,990 3,919 6,867 3,786
Exp.: Exploration
PO: Production Operation
Source: Hayati (2015) and KPK (2016)
Controlling the IUPs by deconcentrating the government authority through UU No. 4/ 2009
Vs UU No. 23/ 2014
In 2014, a new law of Local Government –UU No. 23/ 2014, has been issued. This is to
redefine the authorities between central, provincial, and regency/ city government. This
provides detailed provisions on the relationship between the different levels of government
where the government authority is now divided at solely central and province levels.

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According to Indonesia Coal Mining Association (ICMA-APBI) (2016), the most notable
change implied by UU No. 23/ 2014 is that Regency and City Governments are now
excluded from having any authorities over mining activities. Furthermore, the mining
authority at the local level is now belonging to Governor (Head of Provincial Government).
Meanwhile, the PMA or foreign investor should obtain their IUP from Central Government
as now the mining jurisdiction is transferred up to the central. The more detail about the
government authority on mining sector is depicted in Table 10.
Table 10. Authority of Central Government and Provincial Government over Mining
Central Government
Determining
Issuing
• Mining Areas (WP)
• Mining Business Areas (WUP)
• Community Mining Areas (WPR)
• State Reserve Area (WPN)
• Special Mining Business Areas (WUPK)
• Special Mining License Business Area
(WIUPK)
• Mining Business License Business Areas
(WIUPK) for metallic minerals and coal
• Non-metallic minerals and rocks WIUPs
that cover multiple provinces or are
located beyond 12 miles from coastline
• Benchmark prices for metallic mineral
and coal
• Mining Business Licenses (IUP) for WIUP
beyond 12 miles from coastline, covering
multiple provinces or ordering other
countries
• IUP for PMA companies
• Special Mining Business Licenses (IUPK)
• IUP registration and determination of
provincial production rates for metallic,
mineral, and coal
• IUP OPK for processing and refining for
PMA companies or using raw materials
that are imported or from a different
province
• Mining Services Business Licenses (IUJPI
and Registration Certificates (SKTI for
PMA companies and domestic
companies with nation-wide business
areas
Provincial Government
Determining
Issu
ing
• Determining WIUP for non-metallic
minerals and rocks located within their
respective jurisdiction or within 12 miles
from coastline
• Benchmark prices for non-metallic
minerals and rocks
• Issuing IUP for domestic companies in
areas within the same province and 12
miles from coastline
• Community Mining Licenses (IPR)
• IUP OPK for processing and refining
using raw materials from the same
province (only for domestic companies)
• IUJP and SKT for domestic mining
services companies with a business
areas within the same province
Source: Indonesia Coal Mining Association (ICMA-APBI) (2016)

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Actually, the presence of UU No. 4/ 2009 before the establishment of UU No. 23/ 2014 was
actually not eliminating the role of Regency/ City Government for having authority in the
mining sector. Simarmata & Firdaus (2016) and Taufik & Damanik (2016) explain that this
law still provides a large portion of authorities for Regency/ City Government related to
mining management. There are eleven authorities owned by Regency/ City Government
acknowledged by UU No. 4/ 2009.
1. The making of Perda or local regulations;
2. the granting of IUP and IPR, guidance, resolution of community conflicts, and
supervision of mining business in regency/ city and/ or marine area up to 4 (four) miles;
3. the granting of IUP and IPR, guidance, resolution of community conflicts and supervision
of mining operations of production operations whose activities are in the districts/
municipalities and/ or marine areas up to 4 (four) miles;
4. inventory, investigation and research, and exploration in order to obtain data and
information on mineral and coal;
5. management of geological information, mineral and coal potential information, as well
as mining information on regencies/ cities, preparation of mineral and coal resource
balance in regency/ city areas;
6. development and empowerment of local communities in mining business by taking into
account environmental sustainability;
7. development and enhancement of added value and benefits of mining business
activities optimally;
8. delivery of inventory information, general investigation, research, exploration, and
exploitation to the Minister and Governor;
9. delivery of production information, domestic sales, and export to the Minister and the
governor;
10. guidance and supervision of post-mining land reclamation; and
11. the improvement of the capacity for regency/ city government apparatus in term of
mining business management.

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On the contrary, after the issuance of UU No. 23/ 2014, the Mining Law should be reread in
conjunction with this law, especially in term of mining authority. UU No. 23/ 2014 and its
attachment narrow the Local Government authority in the mining sector by providing three
provisions. Regency/ City Government are not allowed to:
1. form technical unit at local level (such as Local Mining Service);
2. having right in issuing Perda (Local Government Regulation) related to mining sector;
and
3. having right in issuing IUP and IUPR.
The most common basic argument on the pairing of those regulations is to control the
release of IUP. Although it seems to create an uncertainty for mining entities, such
harmonization efforts have been done at the constitutional level. Article 407 of UU No. 23/
2014 has provided an explanation that all the regulation related to Local Government,
required to adjust the policy following UU No. 23/ 2014. This term is acknowledged as lex
fosterior derogate priori (Taufik & Damanik, 2016). This can be simply said; the new law
beat the old law.
3. Dragging Coal for (Securing) National Energy
However, since it becomes a high-value item (around the late 1970s), coal has been
transformed to be a commodity that contributes largely to the country's revenue. UU no. 11/
1967 separates coal and another mineral with different permit schemes. While Law no. 4/2009
explicitly removes coal from the mineral group, and specifically mention coal as separate
mining commodity. This specificity proves that coal is quite special.
Coal with its dynamic regulations has landed perfectly on a strategic policy platform. As has
been historically overviewed on chapter 2, we can see that currently, the mining policy is also
heading to energy security program. Once again, the coal is privileged as one source of
electrical energy. This means, in the future regime, coal will remain a prima donna.

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Apparently, the coal sector is now demanded as part of electricity market at domestic level. As
part of energy security program, coal is wrapped by political-situation that state electrification
is necessary for the national development program. UU No. 4/ 2009 escorts this possibility since
the fall of coal trading at international level. Several other regulations have been prepared to
accompany the new future of coal sector in Indonesia.
In the new Mining Law regime, we have identified four strategic laws related to the coal
industry for national energy security program. They are Forestry Law UU No. 41/ 1999, Spatial
Planning Law UU No. 26/ 2007, Environmental Law UU No. 32/ 2009, and Electricity Law UU No.
30/ 2009 (see Figure 6). The Forestry Law contributes to permit process for conducting mining
in forested areas. The Spatial Law explicitly acknowledge the mining area as part of RTRW.
Environmental Law oversees the mining activities by providing several regulations of
environmental requirements. In addition, Electricity Law seems to be the last law related to
coal. This provides several provisions coal as one of the electricity sources. Those, together with
other relevant laws –especially Energy Law, Investment Law, and Trading Law, guard coal to be
legitimate from permit process to guaranty on the end-user sales as part of national
electrification program.
However, the specific discussion on coal mining under UU No. 4/ 2009 would be explained in
the separated working paper titled “Framing Coal to be Legitimate II: The Regime of Mining
License and Indonesia Energy Security under UU No. 4/ 2009”.

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Investment
(UU No. 25
Year 2007)
Financing
Institutio n on
Export
(UU No. 2/
2009)
Coal Mining
UU No. 4/ 2009
Energy
(UU No. 30/
2007)
Electrification
(UU No. 30/
2009)
Export/ domestic use
Local Tax &
Retribution
(UU No. 2/
2009)
Environmental
Principle
(UU No. 32/
2009)
Fiscal Balance
(UU No. 33/
2004)
Limited
Liability
Company
(UU No. 40/
2007)
Permit Process Mining Area
Government Auth orization
(UU No. 23/ 2014)
Forestry
permit
(UU No. 41/
1999)
Mining Area
under RTRW
(spatial
planning)
(UU No. 26/
2007)
Mining Process
Mining Company
Trading
(UU No. 7/
2014)
Figure 6. Law Regimes over Coal Industry
4. Conclusion
At any rate, the conclusion is projected to answer questions such as why those particular laws
appear? What kind of encouragement lies behind it? In which era of government these
regulations exist? what is the background of this political policy?
This study has highlighted the dynamic of the mining policies in general including coal. This
dynamic shows the change political-will of the government in gaining benefits arising from the
exploitation of natural resources especially coal within Indonesian territories. Although this
study is directed to be more focus on coal, some part of the discussion also mentions the
general mining regime. This is fundamental since the regulation is legitimated in linked laws.
In general, mining is believed as the best-selling commodity. As well as coal, this is always
guarded with many regulations that guarantee the industry stability. There are several usual
inconsistency patterns found in mining establishment since the Old Order to the present reign.
1. The mining and coal policies are always backgrounded by government motivation. This
strongly affects the direction for mining regime.

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2. The government motivation is often highly politicized by several business requests and
political will in order to stabilize the investment climate.
3. When the motivation is determined, the relevant laws are issued in the adjacent time to
support the direction of mining regime.
4. In opposite to government policy that is more investment minded, the environmental
issues are banged as obstacles to mining management. Thus, the term of
“sustainability” on mining is then resulted to guarantee the environmentally friendly
industry. An UU No. 32/ 2009 of Environment Protection and Management was issued
to guide this matter. Several derivatives regulation is then injected to mining policies.
5. However, this dynamic leaves a lot of conflicts of interest, overlapping authority, and
uncertainty especially in mining and coal industry.
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