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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, 26 October 11
INDIAN MARKET WAS REMAINED TIGHT THE WHOLE LAST WEEK - BRS
The market once more seems to be at a crossroads. The indices last week remained fairly stable (except for the Panamax sector), ending the week as f ...
Tuesday, 25 October 11
DRY BULK MARKET STEADY, ANALYSTS LOOKING FOR ADDED PRESSURE ON THE MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market was unchanged on Monday, with the industry’s benchmark, the BDI (Baltic Dry Index) ending the session at 2,153 points, exa ...
Monday, 24 October 11
NEW HEAD OF INDONESIA'S MINING MINISTRY GETS RAKED OVER THE COALS - JOSEPH KIRSCHKE
COALspot.com - Following Indonesia’s presidential cabinet shakeup last week, many are questioning the qualifications of Energy and Mineral Res ...
Monday, 24 October 11
CHINA QINHUANGDAO COAL PRICE RISES TO HIGHEST IN THREE YEARS - BUSINESSWEEK
Business week reported that, China’s power-station coal price rose to the highest level in three years as power stations and central heating p ...
Monday, 24 October 11
CAPESIZE RENTAL RATES RISE FOR THIRD DAY AS MORE SHIPS HIRED - HELLENIC SHIPPING
Rates to hire capesize vessels advanced for a third day on signs of increased demand to transport iron ore, used to make steel.Daily rates for the s ...
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- Deloitte Consulting - India
- Merrill Lynch Commodities Europe
- Mercuria Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Antam Resourcindo - Indonesia
- Minerals Council of Australia
- Manunggal Multi Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- Lanco Infratech Ltd - India
- Global Green Power PLC Corporation, Philippines
- Sojitz Corporation - Japan
- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- Directorate Of Revenue Intelligence - India
- Indian Energy Exchange, India
- Rashtriya Ispat Nigam Limited - India
- Africa Commodities Group - South Africa
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Independent Power Producers Association of India
- Ministry of Mines - Canada
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Billiton Holdings Pty Ltd - Australia
- Xindia Steels Limited - India
- SMG Consultants - Indonesia
- Aboitiz Power Corporation - Philippines
- Semirara Mining Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- Baramulti Group, Indonesia
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- Makarim & Taira - Indonesia
- Borneo Indobara - Indonesia
- Mintek Dendrill Indonesia
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- LBH Netherlands Bv - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- AsiaOL BioFuels Corp., Philippines
- Gujarat Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- Riau Bara Harum - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Formosa Plastics Group - Taiwan
- Star Paper Mills Limited - India
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- Uttam Galva Steels Limited - India
- Singapore Mercantile Exchange
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Heidelberg Cement - Germany
- PNOC Exploration Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Bharathi Cement Corporation - India
- GVK Power & Infra Limited - India
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Intertek Mineral Services - Indonesia
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Vizag Seaport Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Renaissance Capital - South Africa
- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- International Coal Ventures Pvt Ltd - India
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- IEA Clean Coal Centre - UK
- Orica Australia Pty. Ltd.
- Electricity Authority, New Zealand
- Meralco Power Generation, Philippines
- Power Finance Corporation Ltd., India
- GN Power Mariveles Coal Plant, Philippines
- Kobexindo Tractors - Indoneisa
- Oldendorff Carriers - Singapore
- Binh Thuan Hamico - Vietnam
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Central Electricity Authority - India
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- The Treasury - Australian Government
- Metalloyd Limited - United Kingdom
- Eastern Coal Council - USA
- Samtan Co., Ltd - South Korea
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Parry Sugars Refinery, India
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- White Energy Company Limited
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Ambuja Cements Ltd - India
- Meenaskhi Energy Private Limited - India
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Anglo American - United Kingdom
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Planning Commission, India
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Energy Development Corp, Philippines
- Eastern Energy - Thailand
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Malabar Cements Ltd - India
- Sakthi Sugars Limited - India
- Globalindo Alam Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Tata Chemicals Ltd - India
- The State Trading Corporation of India Ltd
- Coal and Oil Company - UAE
- Pendopo Energi Batubara - Indonesia
- The University of Queensland
- Kapuas Tunggal Persada - Indonesia
- GMR Energy Limited - India
- Bhoruka Overseas - Indonesia
- Coalindo Energy - Indonesia
- Attock Cement Pakistan Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- MS Steel International - UAE
- Alfred C Toepfer International GmbH - Germany
- Bahari Cakrawala Sebuku - Indonesia
- Bayan Resources Tbk. - Indonesia
- PowerSource Philippines DevCo
- Gujarat Sidhee Cement - India
- Vedanta Resources Plc - India
- Australian Commodity Traders Exchange
- Cigading International Bulk Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Orica Mining Services - Indonesia
- Dalmia Cement Bharat India
- Thai Mozambique Logistica
- Georgia Ports Authority, United States
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Tamil Nadu electricity Board
- Jindal Steel & Power Ltd - India
- Coastal Gujarat Power Limited - India
- Economic Council, Georgia
- Posco Energy - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Medco Energi Mining Internasional
- Indo Tambangraya Megah - Indonesia
- Sarangani Energy Corporation, Philippines
- Altura Mining Limited, Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Kartika Selabumi Mining - Indonesia
- PTC India Limited - India
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Marubeni Corporation - India
- Indian Oil Corporation Limited
- Commonwealth Bank - Australia
- Asmin Koalindo Tuhup - Indonesia
- Central Java Power - Indonesia
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