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Friday, 09 March 12
MINING IN INDONESIA: RESTRICTION ON FOREIGN INVESTMENT - SUNIL K KUMBHAT
 COALspot.com - Recently Govt has passed regulation instructing foreign mining companies to reduce their ownership stake.
The regulation known as GR 24 of 2012 ( Amendment of GR 23 of 2010 ), signed by President of Indonesia on Feb. 21,2012 stipulates that foreign shareholders/ Companies must gradually divest 51 percent of their shares in local mining companies to local investors after the fifth year of commercial production and complete the divestment by the 10th year of production. The divestment regulation resulted from a revision to a earlier GR 23 of 2010 that required foreign shareholders in local mineral and coal mining companies to divest 20 percent of their holdings.
The Director general for minerals and coals, said the regulation would not directly apply to contracts made prior to the issuance of the regulation , but so far no clarification in writing.
Local investors were defined by the regulation as the:
1.Central government,
2.Provincial , regency or municipal governments,
3.State-owned enterprises,
4.Regional enterprises and
5.National private companies.
The disinvestment shares are to be offered to entities in the order of priority listed above by way of auction.
Under the new requirement, mining companies must divest a total of 20 percent of their foreign shares from 6th year of starting production, 30 percent by the seventh year, 37 percent by the eighth year, 44 percent by the ninth year and 51 percent by the 10th year.
Prior to the issueance of GR 24/2012 , Mining Licences (IUP's) could not be transferred or assigned from one entity to another but GR 24/2012 provides that an Mining Licence may be transferred to another entity on the basis that the transferor holds a minimum of 51% of the shares in the assignee.
It effectively means foreigners are going to lose control after 10 years. Mining Sector is a capital intensive, risky , Complicated and time consuming business to invest in. By passing regulation and forcing foreign companies to divest within a fixed time frame and drastically changing the mining regulations is likely to discourage the interest of potential foreign investors to invest in the Mining Sector.
Historically, major foreign backed mining projects in Indonesia have been developed under contract based concessions - Contracts of Work (CoW) and Coal Contracts of work( CCoW )- entered into directly with the Government. These contracts covered the life of the project and larger areas than the new licence regime and were seen as a more secure regime , having economic and fiscal terms agreed in a contract that formed a "special law" between the Government and the mining company. In broad perspective such major changes in Govt regulations and increasing uncertainty and shift in foreign investment policy in the mining sector may consequently impact investment interest in other sector also.
The government is currently renegotiating all its contracts with CoW / CCoW mining companies across the nation in compliance with provisions of the 2009 Minerals and Coal Law.
The regulation would act as a disincentive for mining companies as five years is too short period to begin divestment, given that firms typically had 8 to 10 years to repay bank loans. If they have to divest 51% within 10 years, they are not yet reaching the break-even point of their investment.
Indonesia ,southeast Asia’s largest economy contains some of the world’s richest mineral deposits, such as the Freeport-run Grasberg, the world’s largest gold mine, and its fast-growing mining sector accounts for about 10-11 percent of GDP. The new regulation is the latest government move to extract higher domestic profit from the vast mineral wealth in the world’s top exporter of thermal coal and other minerals like tin , nickel, copper , Bauxite etc. But the change in regulation may deter foreign investment in mining sector.
The 2009 mining law was aimed at boosting investment in mining and metals processing, but its supporting regulations have not gone down well with the industry, and new investors still face risks such as policy reversals, local community demands, a tortuous permit process and poor infrastructure.
The latest regulation stipulating foreign ownership in Indonesia’s mining industry is bound to upset foreign investors and cheer local companies. The ruling will limit foreign companies from owning more than 49 percent of some mines, potentially limiting investments in a fast-growing sector.
Under the new regulation, foreign holders/ Companies of mining licenses in Indonesia , will have to cut their stakes to 49 percent at most within 10 years of starting production. Many foreign investors have already expressed grave concerns over this new ruling, arguing that mining is a capital-intensive industry and requires a long payback period.
Under the new ruling, foreign owners’ coal and minerals assets would required to sell the shares to the central and regional governments, state-owned companies or local private companies. This is itself not new, but the new time frame means that investors will not have enough time to recoup their investments, let alone make a profit.
Any country and Indonesia in this particular issue has every right to dictate the terms and conditions for foreign investors who wish to invest in the country. Many other countries also protect their local businesses, and it is the government’s duty to ensure that its own citizens benefit from the nation’s natural wealth.
Foreign investors often take huge risks and invest billions of dollars before they see returns. Their risk-taking allows the mining sector to grow and develop; without them, the country will be worse off. They have a right to expect a reasonable return on their investment, too.
The regulation had been promulgated with good intentions to empower local companies and boost their involvement in the mining industry.
But a balance must be struck between the two goals: attracting foreign investments and ensuring local communities also benefit. By requiring foreign shareholders to sell their stakes in mining assets to local entities, the government is attempting to strike this balance. The key issue is proper calibration of risk and reward ,considering the law of the land.
In spite of the fact that Mining sector in Indonesia is overregulated and lot of uncertainties ,the mining sector will remain most hot sector and cannot be ignored. There is always cost of doing business in Indonesia.
By : Sunil K Kumbhat , Jodhpur( Rajasthan ) India
Views expressed herein are personal views of the author and not that of COALspot.com.
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Thursday, 22 March 12
ECI-CHINA HANDY RATES ARE AROUND US$ 8000 - FEARNLEYS
Handy
Another positive trend was seen last week with more cargoes entering the market. Skaw-Passero/US Gulf climbed slowly up to USD 3700, while US ...
Thursday, 22 March 12
DRY BULK MARKET KEEPS SURGING, CAPESIZES FALLING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
In what seems to be an establishing pattern, the dry bulk market has kept its upward momentum, edging closer to the 900 point-mark, but the larger s ...
Wednesday, 21 March 12
BUMA HAS PRODUCED 2.3 MILLION TONS OF COAL IN FEBRUARY 2012
COALspot.com - PT. Delta Dunia Makmur's overburden removal in February 2012 has reached totaled 23.8 million bcm (+2.4% YoY) while coal production ...
Tuesday, 20 March 12
SMALLER DRY BULK VESSELS STILL LEADING DRY BULK MARKET TO HIGHER GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has been growing during the past couple of weeks, but contrary to the usual practice, it’s not the larger Capesizes which ...
Monday, 19 March 12
WEEKLY DRY MARKET OVERVIEW: SMALLER VESSELS LEAD RATES HIGHER - MARIA BERTZELETOU, HELLENIC SHIPPING
The upward trend of the Baltic Dry Index persists strong from the end of February, spurred from the supramax market that offsets the weakness in the ...
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- Coalindo Energy - Indonesia
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- Antam Resourcindo - Indonesia
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- ICICI Bank Limited - India
- Grasim Industreis Ltd - India
- Siam City Cement - Thailand
- Indonesian Coal Mining Association
- Asmin Koalindo Tuhup - Indonesia
- Tata Chemicals Ltd - India
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- VISA Power Limited - India
- MS Steel International - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thai Mozambique Logistica
- Merrill Lynch Commodities Europe
- India Bulls Power Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Posco Energy - South Korea
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
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- Commonwealth Bank - Australia
- Edison Trading Spa - Italy
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- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
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- Sree Jayajothi Cements Limited - India
- Star Paper Mills Limited - India
- Binh Thuan Hamico - Vietnam
- Sarangani Energy Corporation, Philippines
- Australian Commodity Traders Exchange
- Ind-Barath Power Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Xindia Steels Limited - India
- Minerals Council of Australia
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- Wood Mackenzie - Singapore
- Romanian Commodities Exchange
- Kapuas Tunggal Persada - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- Coal and Oil Company - UAE
- Toyota Tsusho Corporation, Japan
- Globalindo Alam Lestari - Indonesia
- The Treasury - Australian Government
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- Petrochimia International Co. Ltd.- Taiwan
- Essar Steel Hazira Ltd - India
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- Straits Asia Resources Limited - Singapore
- Cigading International Bulk Terminal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Cement Manufacturers Association - India
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- PTC India Limited - India
- San Jose City I Power Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Larsen & Toubro Limited - India
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- Latin American Coal - Colombia
- Chettinad Cement Corporation Ltd - India
- Bhoruka Overseas - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Altura Mining Limited, Indonesia
- Bharathi Cement Corporation - India
- Timah Investasi Mineral - Indoneisa
- Indian Oil Corporation Limited
- Price Waterhouse Coopers - Russia
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- Jorong Barutama Greston.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Mjunction Services Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Marubeni Corporation - India
- Singapore Mercantile Exchange
- ASAPP Information Group - India
- Georgia Ports Authority, United States
- Sojitz Corporation - Japan
- Iligan Light & Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Eastern Coal Council - USA
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Bhushan Steel Limited - India
- Bhatia International Limited - India
- Agrawal Coal Company - India
- Salva Resources Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- Barasentosa Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- Baramulti Group, Indonesia
- Trasteel International SA, Italy
- Rio Tinto Coal - Australia
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- GVK Power & Infra Limited - India
- Chamber of Mines of South Africa
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- GAC Shipping (India) Pvt Ltd
- Energy Development Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Africa Commodities Group - South Africa
- Uttam Galva Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Parliament of New Zealand
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- Therma Luzon, Inc, Philippines
- Thiess Contractors Indonesia
- Formosa Plastics Group - Taiwan
- Sindya Power Generating Company Private Ltd
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- Samtan Co., Ltd - South Korea
- Petron Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Gujarat Sidhee Cement - India
- Miang Besar Coal Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Ministry of Transport, Egypt
- Banpu Public Company Limited - Thailand
- GMR Energy Limited - India
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- McConnell Dowell - Australia
- IHS Mccloskey Coal Group - USA
- PetroVietnam Power Coal Import and Supply Company
- Parry Sugars Refinery, India
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Borneo Indobara - Indonesia
- Medco Energi Mining Internasional
- Orica Mining Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Dalmia Cement Bharat India
- Australian Coal Association
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- Pipit Mutiara Jaya. PT, Indonesia
- Savvy Resources Ltd - HongKong
- PNOC Exploration Corporation - Philippines
- The University of Queensland
- Attock Cement Pakistan Limited
- Global Coal Blending Company Limited - Australia
- Sinarmas Energy and Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Ambuja Cements Ltd - India
- Sical Logistics Limited - India
- Electricity Generating Authority of Thailand
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- Independent Power Producers Association of India
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
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- Siam City Cement PLC, Thailand
- Meralco Power Generation, Philippines
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- Krishnapatnam Port Company Ltd. - India
- Standard Chartered Bank - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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