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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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Thursday, 20 October 11
BRACKEN INTERNATIONAL MINING LISTS ON FRANKFURT STOCK EXCHANGE
Press Release - Bracken International Mining (Code:1BM) listed on the Deutsche Börse’s Frankfurt Stock Exchange today at €1.00 with ...
Thursday, 20 October 11
CAPESIZES, SUPRAMAXES LEAD GAINS FOR DRY BULK MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Struggling to find additional support, but still managing to post gains, the dry bulk market has stabilized itself on higher levels again yesterday, ...
Wednesday, 19 October 11
METALLURGICAL COAL PRICES TO DROP BELOW US$240/TONNE - WOOD MACKENZIE
Wood Mackenzie Says Metallurgical Coal Prices to Drop Below US$240/tonne by Q4 2012 But Long-term Demand Fundamentals Remain Robust
Wood Mackenzi ...
Wednesday, 19 October 11
SUPRAMAX MARKET WAS VERY FIRM LAST WEEK - BRS
With all sectors contributing positively, the BDI ended the week at 2,173 points (+8.6%), its highest level so far in 2011. The BCI stood at 3,587 ( ...
Wednesday, 19 October 11
ADARO ACQUIRES BUKIT ENIM ENERGI - INSIDER STORIES
Insider Stories reported that, Coal miner PT Adaro Energy Tbk, via its subsidiary dubbed PT Alam Tri Abadi, today revealed a 46% stake takeover of a ...
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- Energy Link Ltd, New Zealand
- Ministry of Mines - Canada
- IEA Clean Coal Centre - UK
- Minerals Council of Australia
- Malabar Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Coastal Gujarat Power Limited - India
- McConnell Dowell - Australia
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Bhoruka Overseas - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Chamber of Mines of South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- White Energy Company Limited
- Cement Manufacturers Association - India
- Sojitz Corporation - Japan
- Borneo Indobara - Indonesia
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- ICICI Bank Limited - India
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Xindia Steels Limited - India
- Therma Luzon, Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Globalindo Alam Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Gujarat Sidhee Cement - India
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Tata Chemicals Ltd - India
- Karaikal Port Pvt Ltd - India
- VISA Power Limited - India
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- Holcim Trading Pte Ltd - Singapore
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Jaiprakash Power Ventures ltd
- Sical Logistics Limited - India
- Bhushan Steel Limited - India
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petron Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Star Paper Mills Limited - India
- CIMB Investment Bank - Malaysia
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- GMR Energy Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- Antam Resourcindo - Indonesia
- Bharathi Cement Corporation - India
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- European Bulk Services B.V. - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Africa Commodities Group - South Africa
- Bayan Resources Tbk. - Indonesia
- Mercuria Energy - Indonesia
- PowerSource Philippines DevCo
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Rashtriya Ispat Nigam Limited - India
- Kobexindo Tractors - Indoneisa
- Wood Mackenzie - Singapore
- Banpu Public Company Limited - Thailand
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Metalloyd Limited - United Kingdom
- Medco Energi Mining Internasional
- Orica Australia Pty. Ltd.
- Grasim Industreis Ltd - India
- Global Green Power PLC Corporation, Philippines
- Tamil Nadu electricity Board
- Kalimantan Lumbung Energi - Indonesia
- Indogreen Group - Indonesia
- Larsen & Toubro Limited - India
- Electricity Generating Authority of Thailand
- SMG Consultants - Indonesia
- Siam City Cement - Thailand
- Eastern Coal Council - USA
- The Treasury - Australian Government
- Deloitte Consulting - India
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- Coal and Oil Company - UAE
- The State Trading Corporation of India Ltd
- Rio Tinto Coal - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dalmia Cement Bharat India
- Indian Oil Corporation Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Bukit Baiduri Energy - Indonesia
- Thiess Contractors Indonesia
- Bukit Makmur.PT - Indonesia
- MS Steel International - UAE
- PTC India Limited - India
- London Commodity Brokers - England
- Lanco Infratech Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Bhatia International Limited - India
- Cigading International Bulk Terminal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Vijayanagar Sugar Pvt Ltd - India
- Marubeni Corporation - India
- Trasteel International SA, Italy
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- Billiton Holdings Pty Ltd - Australia
- Meenaskhi Energy Private Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Energy Development Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Indonesian Coal Mining Association
- Economic Council, Georgia
- Gujarat Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- South Luzon Thermal Energy Corporation
- Global Coal Blending Company Limited - Australia
- Gujarat Mineral Development Corp Ltd - India
- Baramulti Group, Indonesia
- San Jose City I Power Corp, Philippines
- Kumho Petrochemical, South Korea
- Ind-Barath Power Infra Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Kepco SPC Power Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- Indo Tambangraya Megah - Indonesia
- Agrawal Coal Company - India
- Planning Commission, India
- Mercator Lines Limited - India
- TeaM Sual Corporation - Philippines
- Riau Bara Harum - Indonesia
- Renaissance Capital - South Africa
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Directorate Of Revenue Intelligence - India
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Energy Exchange, India
- Kartika Selabumi Mining - Indonesia
- Vizag Seaport Private Limited - India
- Edison Trading Spa - Italy
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Coalindo Energy - Indonesia
- Wilmar Investment Holdings
- Central Java Power - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Altura Mining Limited, Indonesia
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Heidelberg Cement - Germany
- Eastern Energy - Thailand
- Karbindo Abesyapradhi - Indoneisa
- GAC Shipping (India) Pvt Ltd
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- The University of Queensland
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- Standard Chartered Bank - UAE
- Interocean Group of Companies - India
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- Krishnapatnam Port Company Ltd. - India
- Posco Energy - South Korea
- Merrill Lynch Commodities Europe
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