New Indonesian divestment requirements move toward resource nationalism

In a backward step, the government has moved to tighten divestment requirements on foreign mining investors. Now mines with a Special Mining Permit (IUKP) license must be at least 51% Indonesian owned within 10 years of production. This dilutes maximum foreign ownership and accelerates the deadline for divestment from 15 years for underground mines and mines with processing and refining facilities. The stricter stipulations may capture, for instance, Indonesia’s largest foreign owned asset—the Grasberg gold and copper mine, part-owned by Rio Tinto. Updated regulations do not specify the price to be paid for divested shares, suggesting existing ministerial regulations will apply. These dictate that if bought by the government, the price will be determined by ‘replacement cost’ (which takes into account only sunk costs) rather than ‘fair market value’. These new requirements follow an earlier ban on the export of unprocessed minerals and are in stark contrast to Indonesia’s broader efforts to improve the business climate and may discourage future foreign investment.