The permitting system for both Indonesian nationals and Indonesian owned companies, and foreign investors, distinguishes between general survey (preliminary investigation) and other exploration work.

INDONESIAN NATIONALS AND INDONESIAN OWNED COMPANIES

Indonesian nationals and wholly owned Indonesian companies conduct general survey work and exploration under a permit called Kuasa Pertambangan (KP).

The application process for a KP for general survey work may be summarized as follows:

• A prescribed application form is filed with the Department of Mines and Energy;
• The application is accompanied by two copies of a geological map of the reserved mining area, the deed of establishment of the mining company as approved by the Ministry of Justice, audited financial statements, and a refundable security deposit;
• The Minister of Mines approves the application “in principle”;
• The application is reviewed by the Technical Directorate;
• The Director General of Mining gives final approval to the KP;
• The applicant pays the required dead rent for the geological area; and
• The applicant takes possession of the original KP document.

The KP for general survey work is valid for one year.

The application for a KP for exploration follows a similar process, although more detailed information concerning the work programme is required, and the dead rent is higher. The KP for exploration is valid for two years plus a one-year extension.

FOREIGN INVESTORS

Prior to applying for a CoW, a foreign investor normally carries out some preliminary investigative work in Indonesia. This preliminary investigation could include geological research, reconnaissance, site visits, sampling, and similar activities. This kind of work can be carried out under the authority of a Permit for Preliminary Survey (Surat Keterangan Izin Peninjauan) or SKIP. The SKIP is issued by the Department of Mines and Energy following approval of an application that has been filed in prescribed form. The SKIP is valid for one month.

The foreign investor who wants to conduct exploration work in a particular area must apply for a CoW. In conjunction with this application, the investor needs to establish an Indonesian limited liability (PT) company following the approval of the first draft of the CoW. The particular kind of limited liability company, which is allowed to have foreign shareholders, is called a PMA company. The CoW will be signed by the PMA company and the Minister of Mines and Energy.

Several months can pass between the date of applying for a CoW and the date of signing. During this period, the applicant may wish to conduct general survey or exploration work in the Contract Area. This work can be conducted under the authority of a Letter of Permit for Preliminary Survey (Surat Izin Penyalidikan Pendahuluan) or SIPP.

A SIPP, once granted, gives the holder exclusive exploration rights over the Contract Area while the terms of the CoW are being finalized. The Area is closed to applications and work by other parties during the term of the SIPP. A SIPP is not a mining authorization, and is not transferable. The SIPP period is usually one year, but can be renewed if required.

A refundable interest bearing bond calculated at US$5.00 per hectare must be deposited with the Department of Mines upon granting the SIPP.

Where the work under a SIPP is conducted by a shareholder of the CoW company, the relevant preproduction expenses incurred by the shareholder can be transferred in due course to the CoW company for deduction by the CoW company under the terms of the CoW.