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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, 12 October 11
CAPESIZE - A SURPRISE JUMP IN RATES - BRS
There was a surge across all sizes last week, resulting in the BDI gaining 101 points to end the week at 2,000 points (+5.3%). The BCI reached 3,218 ...
Wednesday, 12 October 11
CAPESIZE FREIGHT RATES BOUND TO RETREAT FROM 2011 HIGHS ON THE BACK OF TONNAGE OVERSUPPLY SAYS BIMCO
According to Nikos Roussanoglou, Hellenic Shipping, with the BDI (Baltic Dry Index) breaking yet another 2011 high yesterday and ending the se ...
Tuesday, 11 October 11
GLENCORE, SUITOR FOR BUMI PLC? - INSIDER STORIES
Insider Stories reported that, the largest commodities trader in the world, Glencore International Plc, is considering an opportunity to acquire a m ...
Tuesday, 11 October 11
RENUKA COALINDO BUYS JAMBI COAL
PT Renuka Coalindo Tbk, formerly PT Allbond Makmur Usaha Tbk plans to acquire PT Jambi Prima Coal holder of mining concession in Pauh, Sa ...
Monday, 10 October 11
MOZAMBIQUE CHANNEL TO BE THE NEW PIRACY HOTSPOT FOR THIS YEAR SAYS MARITIME SECURITY EXPERT - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The Mozambique Channel, as well as the entrance to the Persian Gulf, are expected to become some of the new pirate hotspots for piracy, says Richard ...
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- Sarangani Energy Corporation, Philippines
- Power Finance Corporation Ltd., India
- Simpson Spence & Young - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Uttam Galva Steels Limited - India
- TeaM Sual Corporation - Philippines
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Electricity Authority, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Posco Energy - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Madhucon Powers Ltd - India
- Mintek Dendrill Indonesia
- Africa Commodities Group - South Africa
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Indian Energy Exchange, India
- Sree Jayajothi Cements Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Ministry of Mines - Canada
- Kalimantan Lumbung Energi - Indonesia
- Attock Cement Pakistan Limited
- Singapore Mercantile Exchange
- Coal and Oil Company - UAE
- PowerSource Philippines DevCo
- ASAPP Information Group - India
- Binh Thuan Hamico - Vietnam
- Petron Corporation, Philippines
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- Carbofer General Trading SA - India
- Barasentosa Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- Xindia Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Indika Energy - Indonesia
- Deloitte Consulting - India
- Wilmar Investment Holdings
- Karbindo Abesyapradhi - Indoneisa
- Coalindo Energy - Indonesia
- Semirara Mining Corp, Philippines
- ICICI Bank Limited - India
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Commonwealth Bank - Australia
- Anglo American - United Kingdom
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- MS Steel International - UAE
- Tata Chemicals Ltd - India
- Kapuas Tunggal Persada - Indonesia
- SMC Global Power, Philippines
- Metalloyd Limited - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Iligan Light & Power Inc, Philippines
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Chettinad Cement Corporation Ltd - India
- Bukit Makmur.PT - Indonesia
- Orica Australia Pty. Ltd.
- Cigading International Bulk Terminal - Indonesia
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Bhoruka Overseas - Indonesia
- The University of Queensland
- Star Paper Mills Limited - India
- Global Coal Blending Company Limited - Australia
- Kohat Cement Company Ltd. - Pakistan
- Larsen & Toubro Limited - India
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- PNOC Exploration Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Kobexindo Tractors - Indoneisa
- Pendopo Energi Batubara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- GN Power Mariveles Coal Plant, Philippines
- GMR Energy Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- Goldman Sachs - Singapore
- Jaiprakash Power Ventures ltd
- New Zealand Coal & Carbon
- Baramulti Group, Indonesia
- Economic Council, Georgia
- Ambuja Cements Ltd - India
- Meenaskhi Energy Private Limited - India
- Formosa Plastics Group - Taiwan
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Eastern Coal Council - USA
- Thiess Contractors Indonesia
- Interocean Group of Companies - India
- Leighton Contractors Pty Ltd - Australia
- Energy Development Corp, Philippines
- Antam Resourcindo - Indonesia
- Kepco SPC Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Orica Mining Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Coastal Gujarat Power Limited - India
- Siam City Cement - Thailand
- Thai Mozambique Logistica
- White Energy Company Limited
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Rashtriya Ispat Nigam Limited - India
- Parry Sugars Refinery, India
- IEA Clean Coal Centre - UK
- VISA Power Limited - India
- Planning Commission, India
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Salva Resources Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Krishnapatnam Port Company Ltd. - India
- Rio Tinto Coal - Australia
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Medco Energi Mining Internasional
- Gujarat Mineral Development Corp Ltd - India
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Bhushan Steel Limited - India
- Aditya Birla Group - India
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- GVK Power & Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Transport, Egypt
- Asmin Koalindo Tuhup - Indonesia
- Heidelberg Cement - Germany
- Australian Coal Association
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Directorate Of Revenue Intelligence - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Timah Investasi Mineral - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Straits Asia Resources Limited - Singapore
- Bulk Trading Sa - Switzerland
- Holcim Trading Pte Ltd - Singapore
- Bharathi Cement Corporation - India
- Videocon Industries ltd - India
- Ceylon Electricity Board - Sri Lanka
- Port Waratah Coal Services - Australia
- Vizag Seaport Private Limited - India
- PTC India Limited - India
- Indian Oil Corporation Limited
- Manunggal Multi Energi - Indonesia
- Kumho Petrochemical, South Korea
- European Bulk Services B.V. - Netherlands
- CNBM International Corporation - China
- Makarim & Taira - Indonesia
- GAC Shipping (India) Pvt Ltd
- Directorate General of MIneral and Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- Mercator Lines Limited - India
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- Standard Chartered Bank - UAE
- Alfred C Toepfer International GmbH - Germany
- Tamil Nadu electricity Board
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