by: DSAP Lawfirm
The Indonesian mining landscape has transitioned from a decentralized, contract-based regime into a highly centralized, state-controlled licensing system designed to capture the maximum economic rent for the national interest while compelling industrial maturity through downstream mandates. For the professional investor, the legal framework is no longer a static set of rules but a dynamic ecosystem where administrative law, constitutional mandates, and sectoral policies converge. The bedrock of this transformation lies in the shift from the 2009 Mineral and Coal Mining Law toward the significant amendments of 2020 and the most recent legislative overhauls of 2025. Understanding legal protection in this context requires more than a cursory glance at investment guarantees; it necessitates a granular analysis of how sovereign rights are balanced against the protections afforded to private capital under the 2007 Investment Law and contemporary government regulations.
The Constitutional Philosophy of Mining Governance
To appreciate the legal protections—and the limitations thereof—within the Indonesian mining sector, one must first confront the constitutional philosophy governing natural resources. Article 33, paragraph (3) of the 1945 Constitution of the Republic of Indonesia stipulates that the earth, water, and the natural resources contained therein are controlled by the state and must be utilized for the maximum prosperity of the people. This “state control” (hak menguasai negara) is not merely a symbolic statement of sovereignty but the legal foundation upon which all subsequent mining regulations are built.
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This constitutional mandate has historically driven the “resource nationalism” observed in Indonesian policy. From an investor’s perspective, legal protection is interpreted as the stability of contracts and the predictability of regulations. From the state’s perspective, however, legal protection includes the right to amend the rules of resource exploitation to ensure the nation captures its fair share of value. This inherent tension was the catalyst for the transition from the old Contract of Work (CoW) and Coal Mining Concession Agreement (PKP2B) systems to the modern Mining Business License (IUP) and Special Mining Business License (IUPK) frameworks.
| Regulatory Era | Governance Model | Primary Legal Instrument | State’s Role |
| Pre-2009 | Contractual (CoW/PKP2B) | Law No. 11 of 1967 | Contractual Partner |
| 2009–2020 | Transition (IUP/IUPK) | Law No. 4 of 2009 | Licensor (Decentralized) |
| 2020–2024 | Centralized Licensing | Law No. 3 of 2020 | Licensor (Centralized/National) |
| 2025–Present | Downstreaming/Inclusive | Law No. 2 of 2025 | Strategic Regulator/Partner |
The Evolution toward Law No. 2 of 2025
The enactment of Law No. 2 of 2025 on March 19, 2025, marks the fourth amendment to the 2009 Mining Law and represents the current zenith of Indonesian mining policy. This law was enacted to address several long-standing regulatory ambiguities and to harmonize mining activities with the government’s aggressive “hilirisasi” (downstreaming) agenda. The 2025 amendment does not merely tweak existing procedures; it fundamentally alters the eligibility for mining licenses and the flexibility of land-use governance to favor industries that add domestic value.
One of the most critical aspects for foreign investors in the 2025 law is the formal prioritization of domestic market obligations (DMO). While previous laws encouraged domestic utilization, Law No. 2 of 2025 affirms, for the first time, the absolute prioritization of domestic minerals and coal in the national interest. This means that holders of IUPs and IUPKs must satisfy domestic needs before they are permitted to export, a requirement that applies during the production operation phase—encompassing construction, mining, processing, and refining.
Centralization and the Removal of Regional Discretion
The move toward centralization, which began in earnest with Law No. 3 of 2020, has been further solidified. By concentrating the authority to issue licenses within the central government (specifically the Ministry of Energy and Mineral Resources or MEMR), the state aims to eliminate the administrative inconsistencies that plagued the decentralized era. During the decentralized period under Law No. 4 of 2009, regional regents (Bupatis) frequently issued overlapping permits, leading to protracted legal battles and a perception of high regulatory risk.
Under the current centralized regime, the MEMR serves as the sole authority for metallic minerals and coal, while provincial governments retain limited authority over non-metallic minerals and rocks. For the foreign investor, this centralization provides a single point of accountability, ostensibly simplifying the due diligence process. However, this also means that a single policy shift in Jakarta can have immediate and nationwide ramifications for all license holders.
The Online Single Submission (OSS) System: Procedural Protection
Legal protection in the digital age is manifested through the Online Single Submission (OSS) system, regulated under Government Regulation No. 5 of 2021. The OSS system is intended to be the “single window” for all business licensing, reducing the opportunity for bureaucratic rent-seeking and providing a transparent digital trail of the application process. For mining investment, the OSS issues the Business Identification Number (NIB), which acts as the legal identity of the company.
However, the NIB is only the foundational layer. Mining activities require specific sectoral permits (IUP/IUPK) that necessitate technical verification from the MEMR. This multi-layered process ensures that while the initial entry is streamlined, the state maintains a rigorous filter for environmental, technical, and financial capability.
| Stage of Investment | Regulatory Requirement | Relevant Authority | Documentation |
| Entry | Establishment of PT PMA | Ministry of Law and Human Rights | Deed of Incorporation |
| Licensing | NIB & Standard Certificate | OSS Institution | NIB (Business ID) |
| Technical Phase | Exploration IUP | MEMR (Central) | Work Plan (RKAB) |
| Production Phase | Production Operation IUP | MEMR (Central) | AMDAL (Environmental Impact) |
| Expansion | Smelter/Refinery Permit | Ministry of Industry/MEMR | IUI/IUP-OP |
Protection against Expropriation and Nationalization
The 2007 Investment Law (Law No. 25 of 2007) remains the primary safeguard for foreign capital against arbitrary state action. Article 7 of this law explicitly prohibits the state from nationalizing or expropriating an investor’s assets unless mandated by law for a public purpose. In the rare event that expropriation occurs, the state is legally bound to provide compensation based on fair market value, determined by international standards.
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Despite these protections, the concept of “creeping expropriation” is a concern for many in the mining sector, particularly regarding the 51% mandatory share divestment rule. Under Law No. 3 of 2020 and Law No. 2 of 2025, foreign mining companies must gradually divest their ownership to Indonesian participants after ten years of production. While the government frames this as a fulfillment of the constitutional “state control” mandate, international legal scholars often debate whether the valuation methods used for such divestments truly reflect the market value of the enterprise’s long-term potential.
The 51% Divestment Requirement and Ownership Dynamics
The mandatory divestment policy is arguably the most significant non-tax financial obligation for foreign investors. The rationale provided by the government includes increasing state and regional revenue, improving community welfare, and reducing foreign corporate dominance in the exploitation of mineral resources.
| Divestment Milestone | Requirement (%) | Eligible Participants | Valuation Basis |
| Year 6 | 20% | BUMN/BUMD | Fair Market Value (Excl. Reserves) |
| Year 10 | 51% | BUMN/BUMD/National Private | Fair Market Value (Excl. Reserves) |
This requirement is reinforced by Government Regulation No. 25 of 2024 and Law No. 2 of 2025. For the investor, the “legal protection” here lies in the procedural fairness of the divestment process. If the central government, regional government, or BUMNs decline the offer, the shares must then be offered to the national private sector through an auction or direct negotiation, ensuring the investor has a path to monetize their equity.
The Downstreaming (Hilirisasi) Mandate as a Legal Condition
In the contemporary Indonesian context, legal protection is increasingly contingent on the investor’s commitment to domestic industrialization. The “hilirisasi” policy is the strategic core of the Prabowo-Gibran administration’s economic agenda, continuing the trajectory set by the previous administration. Indonesia has effectively utilized its dominant position in minerals like nickel to compel the construction of domestic smelters and refineries.
To protect and incentivize these massive capital investments, the government provides several fiscal and non-fiscal benefits:
- Extended Tenure: Companies that integrate mining with processing/refining can receive production licenses for up to 30 years, significantly longer than the standard 20-year term.
- Tax Holidays and Allowances: Under Minister of Finance Regulation No. 130/PMK.010/2020 and its 2025 extensions, eligible “pioneer” industries (including advanced smelting) can enjoy corporate income tax reductions of up to 100%.
- Zoning Protection: Law No. 2 of 2025 introduced a provision where the government guarantees no changes to zoning plans within mining business areas, provided those areas support downstream development.
The Global Minimum Tax and Tax Holiday Calibration
An emerging challenge to the fiscal protection framework is the Global Minimum Tax (GMT) regime advocated by the OECD. In 2025, the Indonesian Ministry of Finance began adjusting its tax holiday schemes to comply with the 15% minimum corporate tax rate. If Indonesia were to grant a full tax holiday (0% tax), the investor’s home country might collect the 15% difference, effectively meaning Indonesia is subsidizing another country’s treasury. To protect its own revenue while maintaining investment appeal, the government is redesigning incentives to be “GMT-proof,” ensuring that the benefits remain with the investor in Indonesia rather than being “leaked” to foreign tax jurisdictions.
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Priority Granting and the Role of Non-Traditional Actors
A distinctive feature of the latest regulatory shift is the expansion of entities entitled to priority mining rights. Historically, priority was the exclusive domain of state-owned enterprises (BUMN). However, Law No. 2 of 2025 and Government Regulation No. 39 of 2025 have significantly broadened this scope to include:
- Cooperatives and Small/Medium Enterprises (SMEs): Aimed at democratizing the mining sector and empowering local economies.
- Religion-Affiliated Business Entities: This highly debated move allows business arms of major religious organizations (such as Nahdlatul Ulama and Muhammadiyah) to receive priority offers for mining license areas (WIUPK).
- Entities Supporting Higher Education: Private companies that commit a portion of their profits to Indonesian universities can receive priority in license allocations.
For the professional foreign investor, these priority rights represent a shift in the competitive landscape. While 100% foreign ownership is theoretically possible in many processing sectors, the most lucrative mining areas may now be allocated to these “priority” groups first. Consequently, strategic joint ventures with these entities are becoming a critical mechanism for legal and political risk mitigation.
Dispute Resolution: Domestic and International Mechanisms
A robust legal protection framework must provide a reliable mechanism for the resolution of disputes. In Indonesia, these are broadly categorized into three tiers:
1. The Administrative Court (PTUN)
Disputes concerning the issuance, suspension, or revocation of mining licenses are typically handled through the Administrative Court (Peradilan Tata Usaha Negara – PTUN). Under Law No. 2 of 2025, the government has the discretion to revoke overlapping licenses issued prior to the new law to synchronize mining areas across the archipelago. The law provides a 14-day window for affected parties to provide “clarification” before a revocation becomes final, serving as a procedural safeguard against arbitrary action.
2. The Constitutional Court (MK)
The Constitutional Court plays a pivotal role in the “legal protection” of the entire system. Recent decisions have shaped the very fabric of the 2025 law. For example, a 2020 decision declared that the government could not “guarantee” contract extensions, as this would infringe on the state’s sovereign right to evaluate the performance of the operator and the benefit to the public. Consequently, the 2025 law now states that the government “may” grant extensions based on criteria such as increased state revenue and environmental audit results, rather than guaranteeing them as of right.
A current landmark case, No. 264/PUU-XXIII/2025, involves a citizen challenge seeking to mandate a minimum 51% state ownership in all mining companies from day one, rather than through gradual divestment. If successful, this could fundamentally disrupt the current FDI model, demonstrating that the ultimate legal protection for investors—the stability of the law itself—is always subject to constitutional review.
3. International Arbitration and Bilateral Investment Treaties (BITs)
For foreign investors, Bilateral Investment Treaties (BITs) provide a layer of protection that transcends domestic law. Article 7, paragraph (3) of the Investment Law allows for disputes over compensation for expropriation to be resolved through international arbitration. Indonesia has a complex history with the International Centre for Settlement of Investment Disputes (ICSID) and has in recent years reviewed and terminated many older BITs to replace them with “new generation” treaties that provide more regulatory space for the state.
| Treaty Type | Key Protection | Dispute Mechanism |
| Old BITs | Broad Fair & Equitable Treatment (FET) | Investor-State Dispute Settlement (ISDS) |
| New BITs/FTAs | Limited FET; “Right to Regulate” | ISDS with mandatory mediation/exhaustion |
| Investment Law | Non-Discrimination; Compensation | Domestic courts or Arbitration |
Fiscal Protections and the Progressive Royalty System
Financial stability is a core component of investment protection. In 2025, Government Regulation No. 19 of 2025 introduced a major shift in the mining royalty structure, implementing a progressive tax system. For commodities such as nickel, copper, and tin, royalty rates are now tied to global benchmark prices.
This progressive system is designed to act as a “stabilizer”: during periods of low prices, royalties remain manageable, protecting the investor’s cash flow; during price booms, the state captures a larger share of the windfall, protecting the national interest.19 This replaces the old fixed-rate system which often led to political pressure for “renegotiation” during commodity super-cycles.
Export Proceeds (DHE) and National Resilience
Another significant financial regulation introduced in 2025 is Government Regulation No. 8 of 2025 regarding Foreign Exchange Export Proceeds (DHE). All exporters of natural resources are now required to deposit 100% of their export earnings into designated Indonesian bank accounts for at least 12 months. This measure is intended to stabilize the Rupiah and enhance national economic resilience. While some investors view this as a liquidity constraint, the government frames it as a necessary macro-prudential measure to protect the very economy in which the investors operate.
Environmental Compliance as a Legal Prerequisite
In 2025 and 2026, the “legal protection” of a mining permit is inextricably linked to environmental performance. The government has demonstrated a willingness to revoke permits for environmental violations, as seen in the Raja Ampat case in June 2025, where four nickel companies were shut down for damaging biodiversity.
Furthermore, the integration of the “Coretax” system with the “Minerba One” application in 2026 means that approvals for the annual Work Plan and Budget (RKAB) will be automatically blocked if a company has outstanding tax or environmental remediation obligations. This creates a “compliance-based” protection model: the state protects the investor’s right to operate only as long as the investor protects the state’s environmental and fiscal interests.
Geopolitical Context: Critical Minerals and Global Supply Chains
Indonesia’s mining regulations do not exist in a vacuum; they are a response to the global energy transition. The demand for nickel, bauxite, and copper—essential for EV batteries and renewable energy—has given Indonesia unprecedented leverage. Indonesia’s “Critical Minerals Moment” involves turning its resource wealth into “rules-based prosperity”.
To mitigate the risk of being caught in the US-China trade tensions, Indonesia is actively pursuing “Critical Minerals Compacts” and alignment with OECD environmental and social standards (ESG). For investors from the United States, obtaining “IRA tax-credit equivalency” for Indonesian nickel is a major goal, but this requires Indonesia to demonstrate rigorous ESG certification and traceability frameworks. Thus, the government’s push for “responsible mining” is not just a domestic policy but a strategic move to protect the global marketability of Indonesian minerals.
Strategic Asset Governance: MoF Reg 77/2025
The management of mining assets during the transition from old contracts to new licenses is governed by Minister of Finance Regulation No. 77 of 2025. This regulation replaces the 2021 framework and introduces a “definitive cut-off mechanism” for state assets.
| Asset Category | Governance Rule | Authority |
| PKP2B State Assets | Mandatory Inventory/Cut-off | Minister of Finance |
| Operational Waste | Optimization/Reuse Permitted | User of Goods (MEMR) |
| Land & Buildings | Reversion to State upon Expiry | BP BUMN/MoF |
This regulation is crucial for business certainty during the transition phase. It allows for “Prior Utilization,” where an operator can continue using essential infrastructure even while the formal transfer of asset ownership to the state is being finalized. This prevents operational paralysis, which was a major risk in previous license transitions.
The Role of BP BUMN and Investment Management Agencies
With Presidential Regulation No. 105 of 2025, the government established the BUMN Regulatory Agency (BP BUMN), which assumes many of the functions previously held by the Ministry of BUMN. This agency, reporting directly to the President, is tasked with reviewing the work plans of the Investment Management Agency (BPI Danantara) and overseeing the performance of state-owned mining giants like MIND ID.
For the foreign investor, this signifies a more centralized and “presidential” oversight of the state’s mining partners. The involvement of BP BUMN in analyzing investment strategies suggests that the state’s role as a “joint venture partner” is becoming more professionalized and strategically aligned with national development goals.
Summary of Legal Protections and Emerging Risks
The legal protection framework for mining in Indonesia is a sophisticated matrix of constitutional mandates, centralized administrative procedures, and conditional fiscal incentives.
- Constitutional Anchor: All protections are subordinate to the “maximum benefit” principle of Article 33.
- Centralized Certainty: Law No. 3/2020 and Law No. 2/2025 provide a unified regulatory front, reducing local-level interference.
- Procedural Transparency: The OSS system and Minerba One app provide a digital safeguard against administrative delays, provided compliance is met.
- Fiscal Stability: The progressive royalty system (GR 19/2025) and “GMT-proof” tax holidays provide a predictable, if higher-cost, financial environment.
- Strategic Conditionality: Legal security is strongest for investors who build smelters, partner with priority entities, and maintain impeccable ESG standards.
| Risk Factor | Mitigating Legal Mechanism | Relevant Law/Reg |
| Arbitrary Revocation | PTUN Clarification Period (14 days) | Law No. 2 of 2025 |
| Zoning Changes | Government Guarantee of Stability | Law No. 2 of 2025 |
| Expropriation | Fair Market Value Compensation | Law No. 25 of 2007 |
| License Expiry | Extension Option (2 x 10 years) | Law No. 3 of 2020 |
| Contract Transition | Prior Utilization of Assets | PMK No. 77 of 2025 |
Conclusion: Navigating the 2026 Landscape
The Indonesian mining sector has entered an era of “Contractual Realism.” The days of static, 30-year contracts that are immune to regulatory change are over. In their place is a dynamic licensing system that offers robust protections to those who align their capital with Indonesia’s national industrial goals.
For the professional peer, the most important takeaway is that legal protection in Indonesia is no longer found in the avoidance of the state, but in the integration with the state’s vision. Investors who embrace the 51% divestment as a partnership opportunity, who view ESG as a prerequisite for global market access, and who contribute to the downstream ecosystem will find a state that is willing to provide significant legal and fiscal guarantees. Conversely, those seeking to exploit raw resources with minimal domestic footprint will face a increasingly restrictive and punitive regulatory environment. As the 2026 landscape unfolds, the successful investor will be the one who interprets “legal protection” as a collaborative endeavor between private enterprise and the sovereign goals of the Republic.
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If your company is engaged in the mining sector and wants to invest in mining businesses in Indonesia, and needs a law firm that is very experienced in the field of mining investment law, so that your company can be safe, then contact us DSAP Law Firm at telephone number 0857-1944-2140 or email to: management@dsaplawfirm.com