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Friday, 23 December 11
CONTENTIOUS ISSUES IN CONTRACT RENEGOTIATION - THE JAKARTA POST
 The government has been renegotiating mining contracts, especially those 30-40 years old, with almost all mining companies, including PT Freeport Indonesia, which has been operating since 1967. This is a major step the government is taking and of course will affect the climate of mining investment in the future. If not carefully planned and executed, renegotiation might severely harm the prospects of the national mining industry.
That is why it is important for the government to choose the most important points to be brought to the negotiating table and to ensure that the results are beneficial to both sides, i.e., the mining enterprises and the government.
The basis for renegotiation is Law No. 4 /2009 on mining, which has changed the mining-concession regime by introducing a new licensing system. The law replaces mining authorizations (Kuasa Pertambangan or KP) as well as contracts of work (CoWs) and contracts of coal mining work (CCoW or PKP2B). The government acknowledges all CoWs/CCoWs that have been awarded before the law was promulgated; however all CoWs/CCoWs still need to be renegotiated.
The fundamental difference between the concession and licensing regimes lies in a number of points. Most important is the difference in the legal nature. While concession is based on civil law and the source of law is the agreement itself, licensing is public and legislation is the source of law. The application of a “concession” is the agreement between the two parties, the mining enterprises and the government, while a “license” is based on permission from the government.
In terms of rights and obligations, a licensing regime puts the government in a more dominant position. Settlement of disputes is through international arbitration for concession agreements but is via a state administrative court for licensing regimes.
These differences, of course, will be perceived differently by different mining enterprises. Large-scale mining companies and international enterprises prefer arbitration as a legal option, because arbitration is considered to be more fair and free from political intervention. Given that perception, the new regime is seen to generate potentially larger political risks.
Moreover, the bilateral nature of the contract system is believed to provide more protection against future changes in the law than a unilateral licensing system.
For small or national mining companies, however, licensing regimes might be seen to be friendlier as they provide equal opportunities to both domestic and foreign investors in applying for licenses.
Renegotiation is needed to adjust the content of contracts, which have been running since before the Mining Law came into being. These contracts need to be adapted to be in accordance with the new law. Renegotiation began in the fourth quarter of 2009 for CoWs and early 2010 for CCoWs.
Philosophically, however, renegotiation aims at restoring the country’s sovereignty over its natural resources as well as providing a better use of the resources for the people. This is reflected in a number of articles to adjust CoWs and CCoWs, to increase the added value for minerals and coal by imposing an obligation on contractors to establish downstream industrial facilities, to enhance state revenue through rate adjustments for royalties and production fees and to prioritize the use of local and national services.
Based on the notion of providing a better use of resources, a number of strategic issues are being brought to the negotiation table, such as the limitation of mining areas, contract extension, state revenue, divestment obligations for foreign investors that hold full-ownership in local mining firms, the obligation of processing and refining in the country’s smelters, as well as the obligations of the use of domestic goods and services.
As expected, the most prominent issue during the renegotiation is about the augmented state revenue — the first contentious issue. State revenue refers to mining taxes and profit-sharing schemes. The government is tightening tax regulations to enhance national revenue. This is the reason why the tax authority is involved in the renegotiation and assesses whether or not an enterprise is losing money.
Renegotiation on profit-sharing might not be necessary with those enterprises that are losing money. But the key point here is transparency — the enterprises must reveal their income — as the fundamental purpose of the renegotiation is for the results to be fair and transparent.
The limitation of mining areas is the second contentious issue. According to the law, all areas of work that exceed the maximum limit of 100,000 hectares (ha) for minerals and 50,000 ha for coal should be returned to the state. This has proven to be difficult, since most of the large mining enterprises have been working areas beyond this threshold. Freeport has a working area of up to 1.8 million ha, and Arutmin about 70,000 ha, and Inco about 180,000 ha.
The third contentious issue is extension of concession contracts. A concession contract is terminated when it expires. After that, the management must submit to the state, represented by state or local enterprises, a proposal to obtain a new mining license. Contract extension with the old contractor can be achieved only if the contractor is a minority shareholder.
These three issues are problems for both the government and the enterprises to resolve. Currently, there are about 113 plans to renegotiate mining contracts, of which 37 CoWs are in the mining of metals and minerals and 76 are contracts of coal mining work (CCoWs). The majority of the mining enterprises seem to be in the “Partially Agree” mode for CoWs and in the “Agree to All Amendment Articles” mode for CCoWS.
The results must be beneficial to both sides, promoting transparency and fairness. Mining has been contributing greatly to the country’s economy, as well as wealth to a number of mining enterprises. In 2010, mining accounted for about 11.15 percent of GDP for Indonesia overall, and a much higher percentage for provinces such as Papua, Bangka-Belitung, West Nusa Tenggara and East Kalimantan. Mining also accounted for 16.91 percent of Indonesian exports, providing Rp 9.7 trillion of government revenue.
But annual average mining investment is not growing as expected. Only in the coal sector has any large-scale new production capacity been developed in recent years. The vast majority of the investment is for the replacement of mining infrastructure to sustain capacity.
Given the long lead times to find and develop new mines, production declines will be inevitable unless the renegotiation can enhance transparency and the mining policy environment is improved.
We have to remember that the country has some of the most prospective geological areas and according to one international survey, only some areas of Canada and Australia have better mineral prospects. Thus, it is possible for mining to make a much larger economic contribution at the local, provincial and national levels.
The renegotiation process cannot be allowed to hinder this contribution. We have to avoid losing our competitiveness at a time when other countries are seeking new mining investment.
By: Montty Girianna
Source: The Jakarta Post
The writer is director for energy, mineral resources and mining at the National Development Planning Agency (BAPPENAS).
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Wednesday, 02 November 11
MMTC TO BUY 3.73 MILLION TONS OF COAL FOR 2011- 2013
COALspot.com - India’s state-owned coal and mineral trader MMTC looking for 3.73 million tons of power plant coal for the period 2011 - 2012/ ...
Wednesday, 02 November 11
PANAMAX MARKET BECAME QUIETER AFTER THE RECENT RECOVERY - BRS
There were substantial losses across the board this week: the BDI lost 6.3% to end at 2,018 and the BCI 8.2% to end 3,274. In the smaller sizes the ...
Tuesday, 01 November 11
BORNEO LUMBUNG BUYS 23.8% INTEREST IN BUMI
COALspot.com - PT. Borneo Lumbung Energi (BORN), an Indonesian coking coal producer announces that it has signed a sale and purchase agreement, cond ...
Tuesday, 01 November 11
BAKRIE FORMS STRATEGIC PARTNERSHIP WITH BORNEO - REDUCING DEBT BY USD 1 BILLION
Press Release - Enhancing the standing of “Indonesia Inc.” at the London Stock Exchange PT Bakrie & Brothers Tbk (“BNBR” ...
Tuesday, 01 November 11
ATLAS RESOURCES SETS IPO AT RP1,500 - INSIDER STORIES
Insider Stories reported that, coal miner PT Atlas Resources Tbk has set its initial public offering (IPO) at Rp1,500 (approximately US$ 0.169) per ...
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Miang Besar Coal Terminal - Indonesia
- The University of Queensland
- Asmin Koalindo Tuhup - Indonesia
- Minerals Council of Australia
- Medco Energi Mining Internasional
- Grasim Industreis Ltd - India
- Aditya Birla Group - India
- PowerSource Philippines DevCo
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- Vizag Seaport Private Limited - India
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Australian Coal Association
- The Treasury - Australian Government
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coal and Oil Company - UAE
- Orica Mining Services - Indonesia
- Mintek Dendrill Indonesia
- Directorate General of MIneral and Coal - Indonesia
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Vedanta Resources Plc - India
- Agrawal Coal Company - India
- Power Finance Corporation Ltd., India
- Planning Commission, India
- Central Java Power - Indonesia
- London Commodity Brokers - England
- Standard Chartered Bank - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wilmar Investment Holdings
- Siam City Cement PLC, Thailand
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Banpu Public Company Limited - Thailand
- Economic Council, Georgia
- Port Waratah Coal Services - Australia
- Altura Mining Limited, Indonesia
- VISA Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Manunggal Multi Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Jaiprakash Power Ventures ltd
- Tata Chemicals Ltd - India
- Indo Tambangraya Megah - Indonesia
- Ministry of Mines - Canada
- Cigading International Bulk Terminal - Indonesia
- Metalloyd Limited - United Kingdom
- TNB Fuel Sdn Bhd - Malaysia
- CIMB Investment Bank - Malaysia
- Toyota Tsusho Corporation, Japan
- Jindal Steel & Power Ltd - India
- Globalindo Alam Lestari - Indonesia
- New Zealand Coal & Carbon
- Krishnapatnam Port Company Ltd. - India
- Kalimantan Lumbung Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Ministry of Finance - Indonesia
- Videocon Industries ltd - India
- Wood Mackenzie - Singapore
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Baramulti Group, Indonesia
- Parliament of New Zealand
- AsiaOL BioFuels Corp., Philippines
- Indika Energy - Indonesia
- Oldendorff Carriers - Singapore
- MS Steel International - UAE
- Indian Energy Exchange, India
- Kartika Selabumi Mining - Indonesia
- TeaM Sual Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dalmia Cement Bharat India
- Orica Australia Pty. Ltd.
- Offshore Bulk Terminal Pte Ltd, Singapore
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- Timah Investasi Mineral - Indoneisa
- Deloitte Consulting - India
- Marubeni Corporation - India
- Bhoruka Overseas - Indonesia
- Antam Resourcindo - Indonesia
- Kumho Petrochemical, South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- India Bulls Power Limited - India
- Parry Sugars Refinery, India
- Eastern Energy - Thailand
- Posco Energy - South Korea
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- Indonesian Coal Mining Association
- Ind-Barath Power Infra Limited - India
- Goldman Sachs - Singapore
- ASAPP Information Group - India
- Meralco Power Generation, Philippines
- Maheswari Brothers Coal Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Eastern Coal Council - USA
- Coalindo Energy - Indonesia
- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- Neyveli Lignite Corporation Ltd, - India
- Independent Power Producers Association of India
- Madhucon Powers Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Sree Jayajothi Cements Limited - India
- Essar Steel Hazira Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Ministry of Transport, Egypt
- Thiess Contractors Indonesia
- Formosa Plastics Group - Taiwan
- Romanian Commodities Exchange
- White Energy Company Limited
- Kaltim Prima Coal - Indonesia
- Bangladesh Power Developement Board
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- Simpson Spence & Young - Indonesia
- Price Waterhouse Coopers - Russia
- Kepco SPC Power Corporation, Philippines
- Edison Trading Spa - Italy
- Electricity Generating Authority of Thailand
- Coastal Gujarat Power Limited - India
- Sojitz Corporation - Japan
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Therma Luzon, Inc, Philippines
- Riau Bara Harum - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indian Oil Corporation Limited
- Pendopo Energi Batubara - Indonesia
- Mercuria Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Commonwealth Bank - Australia
- Alfred C Toepfer International GmbH - Germany
- Straits Asia Resources Limited - Singapore
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- Karbindo Abesyapradhi - Indoneisa
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petron Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Siam City Cement - Thailand
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- PNOC Exploration Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Chamber of Mines of South Africa
- GVK Power & Infra Limited - India
- Gujarat Sidhee Cement - India
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- Ambuja Cements Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Star Paper Mills Limited - India
- Iligan Light & Power Inc, Philippines
- Heidelberg Cement - Germany
- Mjunction Services Limited - India
- Energy Development Corp, Philippines
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Interocean Group of Companies - India
- Carbofer General Trading SA - India
- Bhushan Steel Limited - India
- Sakthi Sugars Limited - India
- Malabar Cements Ltd - India
- Renaissance Capital - South Africa
- Makarim & Taira - Indonesia
- Binh Thuan Hamico - Vietnam
- Barasentosa Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Tamil Nadu electricity Board
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Thai Mozambique Logistica
- Salva Resources Pvt Ltd - India
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