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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, 01 March 12
INDO-INDIA, LARGE ECO SUPRA CAN FETCH CLOSE TO USD 9K DOP N.CHINA - FEARNLEYS AS
Handy
The Atlantic Handysize market did not see any signs for recovery this week. It is still a major lack of spot cargoes and an oversupply of pro ...
Wednesday, 29 February 12
69 MINERS AGREE TO RENEGOTIATE CONTRACTS - THE JAKARTA POST
The Jakarta Post, one of the leading English news papaer in Indonesia reported that, as many as 60 coal contracts-of-work (PKP2B) and nine non-coal ...
Wednesday, 29 February 12
PUTTING COAL GASIFICATION TO WORK
Clifford Reese of the SSOE Group looks at practical solutions for district energy leaders who wish to implement clean coal technology.
Coal fuels ...
Monday, 27 February 12
COAL MINING PROFITS TOO HIGH, SAYS GOVT - TEMPO INTERACTIVE
Tempo Interactive reported that, Energy and Mineral Resources Deputy Minister of Indonesia Widjajono Partowidagdo has criticized coal-mining compani ...
Monday, 27 February 12
INDONESIAN COAL EXPORTS TO CHINA DROPS 39.76 PERCENT IN JANUARY 2012
COALspot.com: Indonesia, the world largest coal exporter, shipped 28.21* mln mt of coal in January 2012, slightly lower than its December 2011 ...
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- ASAPP Information Group - India
- Indian Energy Exchange, India
- Sinarmas Energy and Mining - Indonesia
- PowerSource Philippines DevCo
- Xindia Steels Limited - India
- Commonwealth Bank - Australia
- TeaM Sual Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Pipit Mutiara Jaya. PT, Indonesia
- McConnell Dowell - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Gujarat Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Barasentosa Lestari - Indonesia
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Vizag Seaport Private Limited - India
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- AsiaOL BioFuels Corp., Philippines
- Ambuja Cements Ltd - India
- Bhoruka Overseas - Indonesia
- India Bulls Power Limited - India
- Dalmia Cement Bharat India
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Africa Commodities Group - South Africa
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
- Energy Development Corp, Philippines
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Chettinad Cement Corporation Ltd - India
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- SN Aboitiz Power Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Romanian Commodities Exchange
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- Asmin Koalindo Tuhup - Indonesia
- Videocon Industries ltd - India
- Energy Link Ltd, New Zealand
- Central Java Power - Indonesia
- Attock Cement Pakistan Limited
- Baramulti Group, Indonesia
- Kideco Jaya Agung - Indonesia
- Meralco Power Generation, Philippines
- Eastern Energy - Thailand
- Aboitiz Power Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- PTC India Limited - India
- Global Business Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Binh Thuan Hamico - Vietnam
- Power Finance Corporation Ltd., India
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Coalindo Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- CNBM International Corporation - China
- Madhucon Powers Ltd - India
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- Electricity Authority, New Zealand
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- Indo Tambangraya Megah - Indonesia
- Timah Investasi Mineral - Indoneisa
- Sree Jayajothi Cements Limited - India
- Makarim & Taira - Indonesia
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- ICICI Bank Limited - India
- Iligan Light & Power Inc, Philippines
- Cement Manufacturers Association - India
- Karbindo Abesyapradhi - Indoneisa
- Sakthi Sugars Limited - India
- Bulk Trading Sa - Switzerland
- GVK Power & Infra Limited - India
- Wilmar Investment Holdings
- Parliament of New Zealand
- Karaikal Port Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kepco SPC Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Eastern Coal Council - USA
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Siam City Cement PLC, Thailand
- Minerals Council of Australia
- Australian Commodity Traders Exchange
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Essar Steel Hazira Ltd - India
- SMC Global Power, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Kohat Cement Company Ltd. - Pakistan
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Intertek Mineral Services - Indonesia
- Medco Energi Mining Internasional
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- Jaiprakash Power Ventures ltd
- Coastal Gujarat Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Antam Resourcindo - Indonesia
- Australian Coal Association
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- Siam City Cement - Thailand
- Orica Australia Pty. Ltd.
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- The University of Queensland
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Mercator Lines Limited - India
- Tata Chemicals Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
- Leighton Contractors Pty Ltd - Australia
- Central Electricity Authority - India
- Coal and Oil Company - UAE
- Jorong Barutama Greston.PT - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Price Waterhouse Coopers - Russia
- Interocean Group of Companies - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- VISA Power Limited - India
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Ministry of Finance - Indonesia
- Simpson Spence & Young - Indonesia
- Vedanta Resources Plc - India
- Neyveli Lignite Corporation Ltd, - India
- White Energy Company Limited
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Sarangani Energy Corporation, Philippines
- The Treasury - Australian Government
- Gujarat Sidhee Cement - India
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- Independent Power Producers Association of India
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Meenaskhi Energy Private Limited - India
- Aditya Birla Group - India
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- Ind-Barath Power Infra Limited - India
- Oldendorff Carriers - Singapore
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- Maharashtra Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Thai Mozambique Logistica
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Goldman Sachs - Singapore
- GAC Shipping (India) Pvt Ltd
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- Semirara Mining Corp, Philippines
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Singapore Mercantile Exchange
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
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