Contract of Work for IUPK OP: A Tough Decision

by White & Case LLP

White & Case LLP

The Indonesian government ("Government") has issued a number of regulations to implement its mining policy, including GR 1/of 20171.

In moving towards a single Special Mining Permit Operation Production license (IUPK Operasi Produksi or "IUPK OP") licensing regime, the Minister of Energy and Mineral Resources ("MEMR") issued Regulation No. 15 of 2017 ("Reg. 15/2017") on 10 February 2017 which provides for the replacement of a Contract of Work ("COW") and Coal Contract of Work ("CCOW") with an IUPK OP. Other regulations provide that a COW mining company must convert to an IUPK OP in order to export concentrates. However, there are some issues that arise under Reg. 15/2017 as discussed below.

Scope of Reg. 15/2017

Reg. 15/2017 deals with three matters:

  • the conversion of mining operations from a COW to an IUPK OP;
  • the procedure for obtaining an IUPK OP Extension for any COW or CCOW that will soon expire; and
  • the management of mining areas that were designated under an expired COW or CCOW.

Conversion of Minerals COW into IUPK OP

Under MEMR Regulation No 5 of 2017, mineral mining companies operating under a COW must convert their COW to an IUPK OP to continue exporting concentrates and resume exports of Unprocessed Nickel and Bauxite for the next five years. Reg. 15/2017 further elaborates the COW conversion process for that purpose. Under Reg. 15/2017, the COW holder initiates the conversion process by filing a conversion and COW termination application along with the supporting documents to the MEMR through the Directorate General of Mineral and Coal ("DGMC"). The DGMC will have seven business days to evaluate the application and report on its review to the MEMR. Based on this report, the MEMR will approve or reject the application.

The conversion process under Reg. 15/2017 does not involve an auction, unlike the process for obtaining a new mining permit (Izin Usaha Pertambangan – "IUP") under the Mining Law2. Presumably, this reflects the Government's intention to remain bound by the terms of the existing converted COWs. However, it is arguable that this "auction-free" conversion process may not have a sufficient legal basis, being neither mandated nor recognised under the Mining Law.

Reg. 15/2017 provides that the terms of an IUPK OP must be in line with prevailing laws and regulations unless stipulated otherwise in the relevant COW and any previous agreements with the Government. All terms and conditions under the converted COWs and any other previous agreements between the Government and the COW holder will remain effective until the expiry of the relevant IUPK OP. However, given that many terms of an existing COW may differ from the current laws and regulations (such as those regarding taxation and mining area size), an issue may arise as to which COW terms will be enforceable. Currently, it is not clear whether the COW holder has any power to negotiate the terms and conditions of the conversion IUPK OP.

The conversion IUPK OP for minerals is granted for a period mirroring the relevant COW expiration date and can be extended twice: each extension for a further 10 year period.

Conversion of COW and CCOW into IUPK OP Extension

COWs and CCOWs that are not converted into IUPK OP will remain valid until the respective expiration date and are not eligible to be extended. To continue their mining activities in the same mining area, prior to the expiration of their respective mining contracts, the relevant COW or CCOW holder must convert their COWs or CCOWs into a license called IUPK OP Extension (IUPK OP Perpanjangan) by applying to DGMC . The application may be filed between six months and two years prior to the relevant expiry date. The MEMR should issue its decision at the latest two months before the expiry of the relevant COW or CCOW.

Rights and obligations under the IUPK OP Extension must be in line with the prevailing laws and regulations. The IUPK OP Extension is valid for ten years and is extendable for a further period of ten years.

Management of Mining Concession following COW or CCOW expiry

Mining areas under an expired COW or CCOW (or a COW that is not eligible to be converted into IUPK OP), will be declared to be either (i) an IUPK OP Area, (ii) an IUPK Exploration Area, or (iii) a State Reserve Area, based on MEMR's decree. Mining areas in points (i) and (ii) can be offered to any IUPK OP or IUPK Exploration holder by priority or through an auction process pursuant to the Mining Law.

For the auction of IUPK Exploration and IUPK OP Areas of metal minerals previously excluded from an IUPK OP conversion, the former COW/CCOW holder who has been converted to IUPK OP has the right to match.


Even though the conversion of COW into IUPK OP is now regulated, the mechanism is not entirely clear. There are areas of uncertainty, such as: (i) what the effective terms and condition of the conversion IUPK OP will be (compared to the existing COW); and (ii) the possibility of a challenge being made to the validity of the conversion IUPK OP due to the insufficient legal basis. On the other hand, COW companies that heavily depend on the export of concentrates may not have much chance to negotiate or challenge the terms of a IUPK OK as they will have to convert in order to continue these activities.

The provisions governing the IUPK OP Extension gives a clearer mechanism for miners who wish to continue their mining business in Indonesia after their existing COW or CCOW expiration date.

Click here to download PDF.

1 See our earlier Client Alert "Changes in Non-Refined Mineral Export and Divestment Policies in Indonesian Mining" on Government Regulation No. 1 of 2017 regarding the Fourth Amendment to Government Regulation No. 23 of 2010 on the Implementation of Mineral and Coal Mining Business Activity ("GR 1/2017"), and other ministerial-level regulations.
2 Law No. 4 of 2009 concerning Mineral and Coal Mining.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© White & Case LLP | Attorney Advertising

Written by:

White & Case LLP

White & Case LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.