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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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Sunday, 09 October 11
FREIGHT MARKET ENDED WITH A POSITIVE DIRECTION - VISTAAR
COALspot.com - The market ended with a positive note with all the segments up except for handy size. The biggest gainer was Panamax index up by 11 p ...
Saturday, 08 October 11
INDONESIAN MINER PLANS $167M IPO TO FUEL SUMATRA COAL BOOM - JG
The Jakarta Globe reported that, coal miner Atlas Resources aims to raise as much as Rp 1.5 trillion ($167 million) in an initial public offering to ...
Friday, 07 October 11
MINING REGULATIONS , OBSTACLES AND GROWTH : INDIA VS INDONESIA - SUNIL K KUMBHAT
COALspot.com - The Govt of India has passed long pending Mines & Minerals (Regulation and Development) Bill, 2011, which seeks to replace ...
Friday, 07 October 11
$100M FOR EXPANSION INTO KALIMANTAN MINING: AKR
The Jakarta Globe, one of the leading English news paper in Indonesia reported that, AKR Corporindo, a fuel and chemical distributor, has set aside ...
Thursday, 06 October 11
REALM SECURES 51% OF KATINGAN RIA COAL PROJECT IN CENTRAL KALIMANTAN
•Realm secures 51% of PT Katingan Ria Thermal Coal Project in Central Kalimantan
•Realm takes ownership of Kalres Limited
•Acquisit ...
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- Economic Council, Georgia
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- OPG Power Generation Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Australian Coal Association
- Larsen & Toubro Limited - India
- Electricity Generating Authority of Thailand
- Miang Besar Coal Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- Siam City Cement PLC, Thailand
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Directorate Of Revenue Intelligence - India
- Global Coal Blending Company Limited - Australia
- Carbofer General Trading SA - India
- Bhushan Steel Limited - India
- Planning Commission, India
- Romanian Commodities Exchange
- Interocean Group of Companies - India
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- Energy Link Ltd, New Zealand
- European Bulk Services B.V. - Netherlands
- Timah Investasi Mineral - Indoneisa
- Mercuria Energy - Indonesia
- Coalindo Energy - Indonesia
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Binh Thuan Hamico - Vietnam
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- Jorong Barutama Greston.PT - Indonesia
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- Ambuja Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Medco Energi Mining Internasional
- PTC India Limited - India
- Energy Development Corp, Philippines
- Tamil Nadu electricity Board
- Wilmar Investment Holdings
- Indo Tambangraya Megah - Indonesia
- TeaM Sual Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Intertek Mineral Services - Indonesia
- Renaissance Capital - South Africa
- ICICI Bank Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining and Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PowerSource Philippines DevCo
- Maharashtra Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- LBH Netherlands Bv - Netherlands
- The University of Queensland
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Lanco Infratech Ltd - India
- India Bulls Power Limited - India
- GMR Energy Limited - India
- MS Steel International - UAE
- New Zealand Coal & Carbon
- Iligan Light & Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Jaiprakash Power Ventures ltd
- Bukit Makmur.PT - Indonesia
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Samtan Co., Ltd - South Korea
- Georgia Ports Authority, United States
- Mercator Lines Limited - India
- Metalloyd Limited - United Kingdom
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Ministry of Mines - Canada
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Kapuas Tunggal Persada - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Agrawal Coal Company - India
- Jindal Steel & Power Ltd - India
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Thiess Contractors Indonesia
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Essar Steel Hazira Ltd - India
- Parry Sugars Refinery, India
- Mintek Dendrill Indonesia
- Maheswari Brothers Coal Limited - India
- Ministry of Finance - Indonesia
- Goldman Sachs - Singapore
- Sakthi Sugars Limited - India
- Orica Mining Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- Sarangani Energy Corporation, Philippines
- Orica Australia Pty. Ltd.
- Barasentosa Lestari - Indonesia
- ASAPP Information Group - India
- Karbindo Abesyapradhi - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- IHS Mccloskey Coal Group - USA
- Indogreen Group - Indonesia
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- SMC Global Power, Philippines
- SN Aboitiz Power Inc, Philippines
- Malabar Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Sindya Power Generating Company Private Ltd
- Commonwealth Bank - Australia
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- SMG Consultants - Indonesia
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- PNOC Exploration Corporation - Philippines
- The State Trading Corporation of India Ltd
- Bahari Cakrawala Sebuku - Indonesia
- London Commodity Brokers - England
- Bukit Baiduri Energy - Indonesia
- Chamber of Mines of South Africa
- Marubeni Corporation - India
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- GAC Shipping (India) Pvt Ltd
- Ministry of Transport, Egypt
- Kaltim Prima Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Merrill Lynch Commodities Europe
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- The Treasury - Australian Government
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- Straits Asia Resources Limited - Singapore
- Singapore Mercantile Exchange
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- Meenaskhi Energy Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Latin American Coal - Colombia
- AsiaOL BioFuels Corp., Philippines
- Neyveli Lignite Corporation Ltd, - India
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- Aditya Birla Group - India
- International Coal Ventures Pvt Ltd - India
- Sical Logistics Limited - India
- Bhoruka Overseas - Indonesia
- Meralco Power Generation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- Kumho Petrochemical, South Korea
- Central Electricity Authority - India
- Standard Chartered Bank - UAE
- White Energy Company Limited
- Star Paper Mills Limited - India
- Formosa Plastics Group - Taiwan
- South Luzon Thermal Energy Corporation
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- Karaikal Port Pvt Ltd - India
- Cement Manufacturers Association - India
- Madhucon Powers Ltd - India
- Edison Trading Spa - Italy
- Baramulti Group, Indonesia
- Independent Power Producers Association of India
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Electricity Authority, New Zealand
- Australian Commodity Traders Exchange
- Ind-Barath Power Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Salva Resources Pvt Ltd - India
- Trasteel International SA, Italy
- Kobexindo Tractors - Indoneisa
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