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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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Sunday, 18 March 12
BUKIT ASAM'S NET PROFIT IN 2011 ROSE 54% TO US$ 339.56 MILLION
COALspot.com - Company revenue for the period January - December 2011 amounting to Rp 10.6 trillion (approximately US$ 1,164,835,164.84) recorded an ...
Saturday, 17 March 12
THE FREIGHT RATES FOR INDONESIA TO INDIA REMAINED FIRM - VISTAAR SINGAPORE
COALspot.com - The market continued to be firm and all segments were up except for Cape Index which was down by 2.46 pct closing at 1,466 points.
...
Saturday, 17 March 12
INDIAN GOVT FINALIZES DRAFT BILL FOR COAL REGULATOR - PTI
The coal sector would soon get a regulator as the government has finalised a draft bill for the purpose, Coal Minister Sriprakash Jaiswal said Wedne ...
Friday, 16 March 12
THE PACIFIC MARKET IS FIRMING UP - FEARNLEYS AS
Handy
A slightly positive trend was seen last week in the Atlantic. Skaw-Passero deliveries fixed around USD 3k to US Gulf, while US Gulf deliveres ...
Thursday, 15 March 12
RAINS AVERAGE SELLING PRICE OF COAL WENT UP BY 22 % IN 2011
COALspot.com - PT. Resource Alam Indonesia Tbk, an Indonesian CCoW (3rd Generation) holder reported Wednesday a 171 percent increase in net profits ...
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- Edison Trading Spa - Italy
- Indogreen Group - Indonesia
- Salva Resources Pvt Ltd - India
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- India Bulls Power Limited - India
- Bangladesh Power Developement Board
- Toyota Tsusho Corporation, Japan
- Ministry of Transport, Egypt
- IHS Mccloskey Coal Group - USA
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Jaiprakash Power Ventures ltd
- Maharashtra Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- OPG Power Generation Pvt Ltd - India
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Coal and Oil Company - UAE
- Karaikal Port Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Siam City Cement PLC, Thailand
- SN Aboitiz Power Inc, Philippines
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- Ambuja Cements Ltd - India
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- White Energy Company Limited
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- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- MS Steel International - UAE
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- CIMB Investment Bank - Malaysia
- Wilmar Investment Holdings
- McConnell Dowell - Australia
- Central Java Power - Indonesia
- Cement Manufacturers Association - India
- Indo Tambangraya Megah - Indonesia
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- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Power Finance Corporation Ltd., India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Simpson Spence & Young - Indonesia
- Uttam Galva Steels Limited - India
- Coastal Gujarat Power Limited - India
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Chettinad Cement Corporation Ltd - India
- ICICI Bank Limited - India
- Bukit Baiduri Energy - Indonesia
- Trasteel International SA, Italy
- CNBM International Corporation - China
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Orica Australia Pty. Ltd.
- Attock Cement Pakistan Limited
- Commonwealth Bank - Australia
- Kideco Jaya Agung - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Formosa Plastics Group - Taiwan
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- Antam Resourcindo - Indonesia
- Global Green Power PLC Corporation, Philippines
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Oldendorff Carriers - Singapore
- South Luzon Thermal Energy Corporation
- Metalloyd Limited - United Kingdom
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Dalmia Cement Bharat India
- Kobexindo Tractors - Indoneisa
- Makarim & Taira - Indonesia
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- Kumho Petrochemical, South Korea
- Therma Luzon, Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Ministry of Finance - Indonesia
- Malabar Cements Ltd - India
- SMG Consultants - Indonesia
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- Kaltim Prima Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- IEA Clean Coal Centre - UK
- Georgia Ports Authority, United States
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Pendopo Energi Batubara - Indonesia
- Global Business Power Corporation, Philippines
- Romanian Commodities Exchange
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bukit Makmur.PT - Indonesia
- Renaissance Capital - South Africa
- Ceylon Electricity Board - Sri Lanka
- Anglo American - United Kingdom
- PTC India Limited - India
- Parry Sugars Refinery, India
- Energy Development Corp, Philippines
- Africa Commodities Group - South Africa
- Holcim Trading Pte Ltd - Singapore
- Siam City Cement - Thailand
- The Treasury - Australian Government
- Sical Logistics Limited - India
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- GVK Power & Infra Limited - India
- Ind-Barath Power Infra Limited - India
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- Marubeni Corporation - India
- Samtan Co., Ltd - South Korea
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- GMR Energy Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Minerals Council of Australia
- New Zealand Coal & Carbon
- SMC Global Power, Philippines
- Indian Energy Exchange, India
- Port Waratah Coal Services - Australia
- PowerSource Philippines DevCo
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tamil Nadu electricity Board
- Altura Mining Limited, Indonesia
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Vizag Seaport Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Lanco Infratech Ltd - India
- LBH Netherlands Bv - Netherlands
- Sojitz Corporation - Japan
- Ministry of Mines - Canada
- Mjunction Services Limited - India
- Tata Chemicals Ltd - India
- Parliament of New Zealand
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Directorate Of Revenue Intelligence - India
- Larsen & Toubro Limited - India
- PNOC Exploration Corporation - Philippines
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Bayan Resources Tbk. - Indonesia
- Essar Steel Hazira Ltd - India
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- London Commodity Brokers - England
- Economic Council, Georgia
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- ASAPP Information Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Aboitiz Power Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Australian Commodity Traders Exchange
- TeaM Sual Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Merrill Lynch Commodities Europe
- Globalindo Alam Lestari - Indonesia
- Coalindo Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Thai Mozambique Logistica
- GAC Shipping (India) Pvt Ltd
- Meralco Power Generation, Philippines
- Mercator Lines Limited - India
- Goldman Sachs - Singapore
- Sindya Power Generating Company Private Ltd
- Bulk Trading Sa - Switzerland
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
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