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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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Tuesday, 01 November 11
DRY BULK MARKETS CORRECTION SPILLS OVER ONTO NEW WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market is losing steam, as evidenced by the falls experienced last week, which were also apparent at the beginning of the new week. A l ...
Monday, 31 October 11
CHINAS HUNGER FOR INDONESIAN COAL AT THREE YEAR-HIGH AS WINTER NEARS - JOSEPH KIRSCHKE
COALspot.com - Chinese demand for power-station coal from Indonesia has soared to its highest level in three years, as central heating plants and po ...
Saturday, 29 October 11
ATLAS RESOURCES SEALS US$95 MIO LOAN - INSIDER STORIES
Insider Stories reported that, coal producer PT Atlas Resources Tbk, that is controlled by Indonesian businessman Andre Abdi, has secured US$95 mill ...
Saturday, 29 October 11
INDONESIA TO INDIA FREIGHT LIKELY TO REMAIN SOFT
COALspot.com - The market continued to slow down and all segment were down this week.
The biggest drop was in the Cape Index down by 8.19 pct&nbs ...
Friday, 28 October 11
RISING COAL PRICES TO WORSEN CHINA'S WINTER POWER CRUNCH - CRI ENGLISH
CRI English reported that, the rising price of coal is fueling concerns about a power crunch set to plague China this winter, analysts said.
The ...
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- TeaM Sual Corporation - Philippines
- Standard Chartered Bank - UAE
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Energy Development Corp, Philippines
- Orica Australia Pty. Ltd.
- Malabar Cements Ltd - India
- Ministry of Mines - Canada
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Vijayanagar Sugar Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Orica Mining Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Formosa Plastics Group - Taiwan
- Cement Manufacturers Association - India
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Rio Tinto Coal - Australia
- Electricity Authority, New Zealand
- Agrawal Coal Company - India
- Thiess Contractors Indonesia
- Wilmar Investment Holdings
- Romanian Commodities Exchange
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Xindia Steels Limited - India
- Attock Cement Pakistan Limited
- Indogreen Group - Indonesia
- Semirara Mining Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Indika Energy - Indonesia
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Alfred C Toepfer International GmbH - Germany
- PTC India Limited - India
- Meralco Power Generation, Philippines
- Leighton Contractors Pty Ltd - Australia
- CIMB Investment Bank - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- Madhucon Powers Ltd - India
- Medco Energi Mining Internasional
- Simpson Spence & Young - Indonesia
- Global Coal Blending Company Limited - Australia
- Pendopo Energi Batubara - Indonesia
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Planning Commission, India
- Antam Resourcindo - Indonesia
- SMG Consultants - Indonesia
- VISA Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Billiton Holdings Pty Ltd - Australia
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- GVK Power & Infra Limited - India
- PowerSource Philippines DevCo
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Tamil Nadu electricity Board
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Coastal Gujarat Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Mjunction Services Limited - India
- Tata Chemicals Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Star Paper Mills Limited - India
- Marubeni Corporation - India
- Indonesian Coal Mining Association
- Larsen & Toubro Limited - India
- Eastern Coal Council - USA
- Therma Luzon, Inc, Philippines
- Edison Trading Spa - Italy
- Aditya Birla Group - India
- Interocean Group of Companies - India
- New Zealand Coal & Carbon
- Parliament of New Zealand
- Trasteel International SA, Italy
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Grasim Industreis Ltd - India
- European Bulk Services B.V. - Netherlands
- Economic Council, Georgia
- Bhatia International Limited - India
- Parry Sugars Refinery, India
- Minerals Council of Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Anglo American - United Kingdom
- Singapore Mercantile Exchange
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Port Waratah Coal Services - Australia
- PetroVietnam Power Coal Import and Supply Company
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Kartika Selabumi Mining - Indonesia
- India Bulls Power Limited - India
- Price Waterhouse Coopers - Russia
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- Altura Mining Limited, Indonesia
- Sojitz Corporation - Japan
- Baramulti Group, Indonesia
- Kobexindo Tractors - Indoneisa
- Banpu Public Company Limited - Thailand
- AsiaOL BioFuels Corp., Philippines
- Dalmia Cement Bharat India
- Merrill Lynch Commodities Europe
- Jaiprakash Power Ventures ltd
- Globalindo Alam Lestari - Indonesia
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Ambuja Cements Ltd - India
- Australian Coal Association
- Kumho Petrochemical, South Korea
- Gujarat Mineral Development Corp Ltd - India
- Sakthi Sugars Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Africa Commodities Group - South Africa
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Ministry of Transport, Egypt
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Meenaskhi Energy Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Bank of Tokyo Mitsubishi UFJ Ltd
- Riau Bara Harum - Indonesia
- The Treasury - Australian Government
- Videocon Industries ltd - India
- Rashtriya Ispat Nigam Limited - India
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Thai Mozambique Logistica
- Coal and Oil Company - UAE
- Jindal Steel & Power Ltd - India
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Electricity Generating Authority of Thailand
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Bukit Makmur.PT - Indonesia
- IHS Mccloskey Coal Group - USA
- McConnell Dowell - Australia
- Savvy Resources Ltd - HongKong
- San Jose City I Power Corp, Philippines
- Straits Asia Resources Limited - Singapore
- GMR Energy Limited - India
- Makarim & Taira - Indonesia
- ICICI Bank Limited - India
- Indian Oil Corporation Limited
- Ministry of Finance - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Goldman Sachs - Singapore
- Chamber of Mines of South Africa
- Bhoruka Overseas - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Oldendorff Carriers - Singapore
- Power Finance Corporation Ltd., India
- Sindya Power Generating Company Private Ltd
- Heidelberg Cement - Germany
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- Australian Commodity Traders Exchange
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Energy Exchange, India
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- Essar Steel Hazira Ltd - India
- Aboitiz Power Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Bangladesh Power Developement Board
- Commonwealth Bank - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Electricity Authority - India
- Latin American Coal - Colombia
- Borneo Indobara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Sical Logistics Limited - India
- Kaltim Prima Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
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