New Mining Law: Areas Of Concern Due To The Transitional Provisions

New Mining Law Areas of Concern due to the transitional provisions

IMA December 2008

Mining Law: Transitional Provision • Article 169: At the time of this Law takes effect: (a).Contracts of Work and Coal Mining Exploitation Working Agreements existing before the promulgation of this Law shall remain effective until their expiry. (b).The provisions that are found in the Contracts of Work and Coal Mining Exploitation Working Agreements as referred to in paragraph (a) shall be adjusted at the latest 1 (one) year as of the promulgation of this Law, except for the provisions concerning state revenues.

Mining Law: Areas of Concern •Fiscal Provisions •Limitation of Mining Area Size •Limitation of term of operation •Limitation related to License System •Smelting domestically

Fiscal Provisions • The Mining Law does not recognize a “nail-down” system. • The Mining Law introduces a mandatory additional payment obligation, i.e., 10% of net profit that should be paid to Central Government (4%) and Local Government (6%).

Questions & notes: • Does it mean royalty and taxes will be subject to laws and regulations prevailing from time to time? • IMA to request PWC to conduct financial analysis with regard to the 10% additional payment and 2007 Government revenues from the mining industry plus the relevant worldwide comparison.

Limitation of Mining Area Size • At the stage of Exploration, the maximum size of area is 100,000 ha.

Questions & notes: • IMA to explain that the size limitation is not sufficient and proper

• At the stage of Production, the maximum size of area is 25,000 ha.

• Essentially, a larger exploration area is better for the Government because the data will be owned by the Government

Limitation of term of operation • At the Production stage, there is a limitation of operation term, i.e., 20 years as of production with two times possible extensions, each for 10 years.

Questions & notes: • Why 20 years? Is there any relevant study as a basis to determine the figure? • How about the existing COWs?

Limitation related to License System • The Mining Law no longer recognizes the Contract of Work regime for COW extensions. • For a COW extension, there is no alternative other than license.

Questions & Notes: • IMA to ask explanation on what will happen if COWs expired.

Smelting Domestically • There is the obligation to build processing and refinery capacity domestically within 5 years as of promulgation of the Mining Law.

Questions & Notes: • What is the consequence if after 5 year, a mining license holder cannot meet the requirement? • And, there is none else capable to process the products? • Why not leave it up to the market?