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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, 18 October 11
INDONESIAN PRESIDENT APPOINTS JERO WACIK AS NEW MINISTER OF ENERGY & MINERAL RESOURCES
COALspot.com - Jero Wacik has been appointed as minister of energy and mineral resources of Indonesia replacing Darwin Saleh and Prof. Widjajono Par ...
Tuesday, 18 October 11
DELTA DUNIA MAKMUR HAS PRODUCED 3.0 MILLION TONS OF COAL LAST MONTH
COALspot.com - PT. Delta Dunia Makmur, wholly owned subsidiary, PT Bukit Makmur Mandiri Utama (BUMA), Delta Dunia Makmur has removed 1.4 million bcm ...
Monday, 17 October 11
KOWEPO TO BUY 260,000 MT BITUMINOUS COAL
COALspot.com - KOWEPO has issued a spot tender for 260,000MT of minimum 5,600kcal/kg NAR Bituminous Coal.
The tender document also mentioned tha ...
Monday, 17 October 11
CAPESIZE SHIPPING COSTS CLIMB TO 10-MONTH HIGH ON ORE IMPORTS
The cost to hire capesize vessels climbed to a 10-month high as rising imports of iron ore to China boosted demand for the ships.Monthly iron-ore sh ...
Saturday, 15 October 11
BUNKER PRICES AND DEMANDS PUSHED FREIGHT RATES UP - VISTAAR
COALspot.com - The market continued to be firm with all segments moving up with biggest gain in Handy size segment up by 15 pct. The BDI was u ...
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- Australian Commodity Traders Exchange
- Ministry of Finance - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Port Waratah Coal Services - Australia
- Salva Resources Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- SMC Global Power, Philippines
- Kumho Petrochemical, South Korea
- Coalindo Energy - Indonesia
- Indian Oil Corporation Limited
- Ministry of Mines - Canada
- Jorong Barutama Greston.PT - Indonesia
- Siam City Cement - Thailand
- Vizag Seaport Private Limited - India
- Uttam Galva Steels Limited - India
- Intertek Mineral Services - Indonesia
- Sarangani Energy Corporation, Philippines
- PowerSource Philippines DevCo
- Bharathi Cement Corporation - India
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- New Zealand Coal & Carbon
- Bukit Makmur.PT - Indonesia
- Mjunction Services Limited - India
- Mercator Lines Limited - India
- Ambuja Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- Sakthi Sugars Limited - India
- Energy Link Ltd, New Zealand
- CNBM International Corporation - China
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Bhushan Steel Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Tamil Nadu electricity Board
- Maheswari Brothers Coal Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Bukit Baiduri Energy - Indonesia
- Romanian Commodities Exchange
- Jindal Steel & Power Ltd - India
- Manunggal Multi Energi - Indonesia
- Mintek Dendrill Indonesia
- Iligan Light & Power Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Global Green Power PLC Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Australian Coal Association
- Posco Energy - South Korea
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Electricity Generating Authority of Thailand
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- Bangladesh Power Developement Board
- White Energy Company Limited
- Economic Council, Georgia
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- Parliament of New Zealand
- GN Power Mariveles Coal Plant, Philippines
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Indika Energy - Indonesia
- Africa Commodities Group - South Africa
- Baramulti Group, Indonesia
- Global Coal Blending Company Limited - Australia
- Kideco Jaya Agung - Indonesia
- Siam City Cement PLC, Thailand
- Gujarat Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- The Treasury - Australian Government
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Videocon Industries ltd - India
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- Goldman Sachs - Singapore
- Attock Cement Pakistan Limited
- Wood Mackenzie - Singapore
- Timah Investasi Mineral - Indoneisa
- Central Electricity Authority - India
- SMG Consultants - Indonesia
- Thiess Contractors Indonesia
- Metalloyd Limited - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Coal and Oil Company - UAE
- IEA Clean Coal Centre - UK
- Trasteel International SA, Italy
- Tata Chemicals Ltd - India
- Straits Asia Resources Limited - Singapore
- Deloitte Consulting - India
- Malabar Cements Ltd - India
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Kobexindo Tractors - Indoneisa
- Sical Logistics Limited - India
- The University of Queensland
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Thai Mozambique Logistica
- McConnell Dowell - Australia
- Coastal Gujarat Power Limited - India
- Heidelberg Cement - Germany
- Toyota Tsusho Corporation, Japan
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Cement Manufacturers Association - India
- GAC Shipping (India) Pvt Ltd
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Ind-Barath Power Infra Limited - India
- Georgia Ports Authority, United States
- Meralco Power Generation, Philippines
- Agrawal Coal Company - India
- Indo Tambangraya Megah - Indonesia
- Electricity Authority, New Zealand
- Chamber of Mines of South Africa
- Rashtriya Ispat Nigam Limited - India
- Alfred C Toepfer International GmbH - Germany
- Kaltim Prima Coal - Indonesia
- Antam Resourcindo - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Rio Tinto Coal - Australia
- Madhucon Powers Ltd - India
- LBH Netherlands Bv - Netherlands
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- Ministry of Transport, Egypt
- Eastern Coal Council - USA
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- CIMB Investment Bank - Malaysia
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Kapuas Tunggal Persada - Indonesia
- Indonesian Coal Mining Association
- IHS Mccloskey Coal Group - USA
- Aditya Birla Group - India
- PNOC Exploration Corporation - Philippines
- Gujarat Sidhee Cement - India
- Ceylon Electricity Board - Sri Lanka
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Billiton Holdings Pty Ltd - Australia
- London Commodity Brokers - England
- Krishnapatnam Port Company Ltd. - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parry Sugars Refinery, India
- Simpson Spence & Young - Indonesia
- ASAPP Information Group - India
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- India Bulls Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Singapore Mercantile Exchange
- Samtan Co., Ltd - South Korea
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Petrochimia International Co. Ltd.- Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- Karaikal Port Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Lanco Infratech Ltd - India
- Planning Commission, India
- San Jose City I Power Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
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