On 21 June 2018, the Government of Indonesia issued Government Regulation No. 24 of 2018 on the Electronic Integrated Business Licensing Service (GR 24). The intention was to simplify the process of obtaining business licences and permits by introducing an integrated online application system. Consequently, the processing and issuance of business licences and permits in the One-Step Integrated Services of Investment Coordinating Board (Pelayanan Terpadu Satu Pintu Badan Koordinasi Penanaman Modal, PTSP-BKPM), which is also applicable to PMA mining companies, has shifted (partially) to the Online Single Submission System (OSS). This new system creates uncertainty in the mining sector as other existing mining regulations still require certain BKPM approvals (of changes in shareholding, status and capital structure) which are under the current system are no longer possible to obtain. In fact, BKPM itself issued an Announcement (see below) that certain mining licences and approvals must be obtained from it on behalf of the Minister of Energy and Mineral Resources (the MEMR).
1. Online Single Submission System
The OSS is meant to be operated by BKPM. Currently, it is being managed by the Coordinating Ministry for Economic Affairs (the CMEA) until BKPM is ready to take over, and that will be further regulated by CMEA through a decree. Any application made through the OSS will be processed online, and no further physical applications will be necessary. The OSS will be applicable to every business entity, including individuals, and will not only be limited to PMA and/or PMDN companies.
2. Implication on mining business sector
2.1 Issuance of new mining business licences
In relation to the implementation of the OSS, BKPM issued announcement No. 2/Pengumuman/A.8/2018, dated 10 July 2018 (Announcement), which states that there are several business sectors including the mining business sector which are still under the authority of PTSP-BKPM.
With respect to the mining business sector, the Announcement stipulates that the processing of (a) a Mining Business Licence Exploration, (b) a termination of a Mining Business Licence due to voluntary termination (pengembalian), (c) a Special Mining Business Licence Operation Production for transportation and sales and its extension, (d) a Mining Business Licence Operation Production and its extension, (e) a Special Mining Business Licence Operation Production for processing and refining and its extension, (f) a temporary licence for transportation and sales, (g) a Special Mining Business Licence Operation Production for sales and (h) a Mining Services Business Licence and its extension, will be done through PTSP-BKPM. This means BKPM (through PTSP-BKPM) will still issue these types of licences.
2.2 Uncertainty regarding the implementation of the OSS in the mining business sector
Previously, BKPM approval for change of shareholding, status, and capital structure would be required for a PMA company and a PMDN company in the mining sector. These approvals were obtained before applying for approval from or notifying the Minister of Law and Human Rights (the MOLHR). The Announcement seems to suggest that the PTSP-BKPM (or BKPM itself) will only oversee the issuance of new licences or approvals (see the licences listed in paragraph 2.1 (a) to (h) above) and will leave the other approvals (of changes in shareholding, status and capital structure) to the OSS. This view has yet to be formally tested with BKPM as BKPM has not provided any clear guidelines on this.
From an acquisition transaction point of view, the market practice in the acquisition of mining company is to require, firstly approval from the MEMR and subsequently, approval from BKPM as conditions precedent items, and approval from or notification to the MOLHR as a condition subsequent (in that order). With the OSS, it is not possible to obtain BKPM approval (of changes in shareholder composition, status and capital structure) prior to the closing of such transaction, as submission to the system will be done after the application for approval from or notification to the MOLHR is made. Approval from or notification to the MOLHR is normally made only after payment has been satisfied because, upon such approval or notification, the new shareholder holds legal title to the shares. Alternatively, the parties will need to set up an appropriate escrow arrangement.
The main intention of the implementation of the OSS is to simplify all licensing processes, regardless of the uncertainties created by it. It will be interesting to see how the Government of Indonesia addresses the uncertainty created by the new system in the future. The longer this issue remains unclear, the more difficult it will be for businesses in the mining sector to close a transaction. BKPM needs to come up with a firm policy, urgently.