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SUBJECT: Defining a CoW Posted By: Aswin
Post Time: 7/24/2007 18:12
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A Contract of Work (“KK”) is an agreement between the Government of Indonesia and an Indonesian company (“PMA”) which has been incorporated for the purpose of allowing foreign investors to conduct mineral mining operations in Indonesia. The KK sets out the terms and conditions under which the PMA can earn the mineral rights to the property. As the House of Representatives is consulted and the President of Indonesia gives his approval, the KK is considered to effectively be a law. Once it has been entered into, it can only be terminated for non-performance or by consent.
Historically, KKs were only for foreign mining companies (there was a different system for domestic companies), though it does require a Indonesian partner. In 1997, it was required that the Indonesian partner have a minimum 10% interest. Current law now requires that Indonesian partner have only a minimum 5% interest. The law does not require that the Indonesian partner’s interest be a carried interest, or that the Indonesian partner remain the same person throughout.
The application process for a KK are:
1. Filing an application with the following supporting material:
a. a map of the tenement;
b. proof of deposit of the “seriousness bond” (US$5.00 per hectare) into the central/regional development bank;
c. annual and audited financial reports of the applicant companies for the previous 3 years; and
d. a “memorandum of understanding” between the foreign and Indonesian applicants.
e. Receipt for Annual Tax Return for latest tax year of Indonesian applicant
2. Government’s granting of “approval in principal”. This is usually granted within 4 to 6 months of the application being made. The granting of In Principal Approval gives the applicants the right, but not the obligation to enter into a Contract of Work, the terms of which are to be negotiated after the applicants decide they wish to proceed.
3. General Survey Period. Granted for one year. Requires payment of:
a. SIPP/General Survey – one year – one possible extension of 1 year
- during term of - must expend $120 or $150 per ha
- General Exploration – 3 years + up to 2 extensions of 1 year each
- Feasibility Study – 1 year + 1 year extension
- Construction – 3 years
- Operating – 30 years + up to 2 extensions of 10 years each
Obtaining and exploring mining concessions in Indonesia is a three (3) step process. First, an application is made for a Contract of Work ("CoW"). At the time the applications for the Mineral Properties were filed, when an applicant was a foreign entity, Indonesian law required that it have an Indonesian partner with a minimum 10% interest, now only 5%. The second step is the granting by the government of "In Principle Approval" for the application, which approval grants exclusive rights to the property through the application phase, including the right to conduct exploration on the property. The third step is the entering into a CoW with the Indonesian government after negotiations, which SA has not yet started. The applicants have an exclusive right, but not the obligation to enter into the CoW. The CoW sets out the terms and conditions for earning the exclusive mineral rights to the property and to develop and operate any mine therein. The CoW is held by an applicant through a wholly owned Indonesian subsidiary, which SA has as PT. SAMI. The applicant's rights and entitlements under the CoW can only be withdrawn by the government of Indonesia for any un-remedied breach of the terms of the CoW.
Best wishes
Soccer