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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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Wednesday, 07 March 12
3RD MOZAMBIQUE COAL CONFERENCE
3rd Mozambique Coal Conference
2-4 July 2012 | Joaquim Chissano International Conference Centre , Maputo, Mozambique
http://www.immevents.com/mo ...
Wednesday, 07 March 12
DRY BULK MARKET KEEPS UP TIMID REBOUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept its rising momentum yesterday, rising for the eighth straight session, on the back of renewed demand for smaller bulk c ...
Wednesday, 07 March 12
BUKIT ASAM EYES 39% RISE IN COAL SALES - INSIDER STORIES
Insider Stories reported that, PT Bukit Asam Tbk is scouting a 39% increase in coal sales volume to 18.66 million tons this year from last year with ...
Wednesday, 07 March 12
PETROSEA SEALS US$188 MIO CONTRACT - INSIDER STORIES
Insider Stories reported that, coal mining contractor PT Petrosea Tbk has secured a US$188 million additional contract from its affiliated firm PT S ...
Monday, 05 March 12
SOUTHGOBI ANNOUNCES AGREEMENT TO SELL ITS THERMAL COAL TSAGAAN TOLGOI DEPOSIT FOR US$ 30 MILLION
SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) announced today an agreement to sell its thermal coal property, the Tsagaan Tolgoi Deposit to Modun Re ...
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- Karaikal Port Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Timah Investasi Mineral - Indoneisa
- Metalloyd Limited - United Kingdom
- Simpson Spence & Young - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- PNOC Exploration Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Thai Mozambique Logistica
- Petron Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Borneo Indobara - Indonesia
- Bulk Trading Sa - Switzerland
- Energy Development Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- Pendopo Energi Batubara - Indonesia
- Wood Mackenzie - Singapore
- Australian Coal Association
- Port Waratah Coal Services - Australia
- Coalindo Energy - Indonesia
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Thiess Contractors Indonesia
- Anglo American - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Indonesian Coal Mining Association
- Larsen & Toubro Limited - India
- Economic Council, Georgia
- Barasentosa Lestari - Indonesia
- Samtan Co., Ltd - South Korea
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- Grasim Industreis Ltd - India
- San Jose City I Power Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- SMG Consultants - Indonesia
- Carbofer General Trading SA - India
- Chamber of Mines of South Africa
- Coal and Oil Company - UAE
- Planning Commission, India
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- Bhatia International Limited - India
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- Mintek Dendrill Indonesia
- IEA Clean Coal Centre - UK
- Formosa Plastics Group - Taiwan
- Singapore Mercantile Exchange
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Bhoruka Overseas - Indonesia
- GVK Power & Infra Limited - India
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Sical Logistics Limited - India
- Rio Tinto Coal - Australia
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- Oldendorff Carriers - Singapore
- Manunggal Multi Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Marubeni Corporation - India
- Lanco Infratech Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Antam Resourcindo - Indonesia
- Siam City Cement PLC, Thailand
- Kideco Jaya Agung - Indonesia
- The Treasury - Australian Government
- Karbindo Abesyapradhi - Indoneisa
- Commonwealth Bank - Australia
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- Goldman Sachs - Singapore
- Sakthi Sugars Limited - India
- South Luzon Thermal Energy Corporation
- Coastal Gujarat Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Price Waterhouse Coopers - Russia
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Wilmar Investment Holdings
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- The University of Queensland
- Latin American Coal - Colombia
- Krishnapatnam Port Company Ltd. - India
- Posco Energy - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Orica Australia Pty. Ltd.
- Altura Mining Limited, Indonesia
- Savvy Resources Ltd - HongKong
- Jindal Steel & Power Ltd - India
- McConnell Dowell - Australia
- Toyota Tsusho Corporation, Japan
- SMC Global Power, Philippines
- Tamil Nadu electricity Board
- Straits Asia Resources Limited - Singapore
- Star Paper Mills Limited - India
- Sinarmas Energy and Mining - Indonesia
- London Commodity Brokers - England
- Bukit Makmur.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- White Energy Company Limited
- Global Business Power Corporation, Philippines
- Vedanta Resources Plc - India
- Meralco Power Generation, Philippines
- Maheswari Brothers Coal Limited - India
- Australian Commodity Traders Exchange
- Indian Oil Corporation Limited
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- Sarangani Energy Corporation, Philippines
- Interocean Group of Companies - India
- Riau Bara Harum - Indonesia
- International Coal Ventures Pvt Ltd - India
- Gujarat Sidhee Cement - India
- TNB Fuel Sdn Bhd - Malaysia
- CNBM International Corporation - China
- Gujarat Mineral Development Corp Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- MS Steel International - UAE
- Central Electricity Authority - India
- Aditya Birla Group - India
- Mjunction Services Limited - India
- Ind-Barath Power Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Globalindo Alam Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bhushan Steel Limited - India
- Ambuja Cements Ltd - India
- Minerals Council of Australia
- PetroVietnam Power Coal Import and Supply Company
- Eastern Energy - Thailand
- Holcim Trading Pte Ltd - Singapore
- Mercuria Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Ministry of Finance - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Edison Trading Spa - Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ASAPP Information Group - India
- LBH Netherlands Bv - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- SN Aboitiz Power Inc, Philippines
- Indika Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Salva Resources Pvt Ltd - India
- Siam City Cement - Thailand
- Global Green Power PLC Corporation, Philippines
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Vizag Seaport Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- The State Trading Corporation of India Ltd
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Videocon Industries ltd - India
- Renaissance Capital - South Africa
- Sojitz Corporation - Japan
- VISA Power Limited - India
- PTC India Limited - India
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- Cement Manufacturers Association - India
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Makarim & Taira - Indonesia
- Bangladesh Power Developement Board
- Kobexindo Tractors - Indoneisa
- Uttam Galva Steels Limited - India
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