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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, 04 October 11
INDONESIA RAISES COAL BENCHMARK (HBA) FOR FIRST TIME IN 4 MONTHS
COALspot.com - Indonesia raised the monthly reference price for sales in October by 2.56 percent, the first increase since June.
The Ministry of ...
Tuesday, 04 October 11
COAL MINING GROUP WANTS EXPORT TAX, NOT EXCISE - JG
One of the leading English news paper in Indonesia, The Jakarta Globe reported that, the government shall reimpose a duty on coal exports, classifyi ...
Sunday, 02 October 11
INDIAN COAL IMPORTS PICKED UP - CAPT. REDDY
COALspot.com - The BDI dropped by 1 pct and Cape index dropped by 6 pct closing at 1,899 points and 3,136 points respectively. However all other seg ...
Saturday, 01 October 11
2012 TO BE ANOTHER CHALLENGING YEAR - CEO, REMI MARITIME
Shipowners are facing another challenging year in 2012 said Mr. Leonidas Polemis CEO of Remi Maritime Corporation, urging caution towards operating ...
Friday, 30 September 11
MINING BILL CLEARED, FIRMS TO SHARE 26% PROFITS WITH LOCALS - NDTV
NDTV reported that, The Union Cabinet cleared the draft mining bill aimed at regulating mining activities Friday. The bill proposes a profit-sharing ...
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- Formosa Plastics Group - Taiwan
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- South Luzon Thermal Energy Corporation
- Chamber of Mines of South Africa
- Kumho Petrochemical, South Korea
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- Heidelberg Cement - Germany
- Tata Chemicals Ltd - India
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Larsen & Toubro Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- Antam Resourcindo - Indonesia
- Thai Mozambique Logistica
- Altura Mining Limited, Indonesia
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Toyota Tsusho Corporation, Japan
- LBH Netherlands Bv - Netherlands
- Coal and Oil Company - UAE
- Samtan Co., Ltd - South Korea
- Savvy Resources Ltd - HongKong
- Oldendorff Carriers - Singapore
- Globalindo Alam Lestari - Indonesia
- Power Finance Corporation Ltd., India
- London Commodity Brokers - England
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Ceylon Electricity Board - Sri Lanka
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- Independent Power Producers Association of India
- Vijayanagar Sugar Pvt Ltd - India
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
- Electricity Generating Authority of Thailand
- Mjunction Services Limited - India
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- Sakthi Sugars Limited - India
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Mines - Canada
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Sinarmas Energy and Mining - Indonesia
- PTC India Limited - India
- Australian Commodity Traders Exchange
- Kalimantan Lumbung Energi - Indonesia
- Meralco Power Generation, Philippines
- Eastern Energy - Thailand
- International Coal Ventures Pvt Ltd - India
- Australian Coal Association
- Straits Asia Resources Limited - Singapore
- Siam City Cement PLC, Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Leighton Contractors Pty Ltd - Australia
- Bhushan Steel Limited - India
- Orica Mining Services - Indonesia
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Latin American Coal - Colombia
- Global Coal Blending Company Limited - Australia
- Parry Sugars Refinery, India
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Iligan Light & Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Kobexindo Tractors - Indoneisa
- ASAPP Information Group - India
- Coalindo Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- Ministry of Finance - Indonesia
- McConnell Dowell - Australia
- Sarangani Energy Corporation, Philippines
- Attock Cement Pakistan Limited
- SMC Global Power, Philippines
- Interocean Group of Companies - India
- The State Trading Corporation of India Ltd
- Semirara Mining Corp, Philippines
- Planning Commission, India
- PowerSource Philippines DevCo
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thiess Contractors Indonesia
- Maheswari Brothers Coal Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Carbofer General Trading SA - India
- Parliament of New Zealand
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Indian Oil Corporation Limited
- Bukit Baiduri Energy - Indonesia
- The University of Queensland
- Chettinad Cement Corporation Ltd - India
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Mercuria Energy - Indonesia
- Borneo Indobara - Indonesia
- Manunggal Multi Energi - Indonesia
- Agrawal Coal Company - India
- Bayan Resources Tbk. - Indonesia
- Banpu Public Company Limited - Thailand
- Indogreen Group - Indonesia
- Africa Commodities Group - South Africa
- India Bulls Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- The Treasury - Australian Government
- Kartika Selabumi Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Bharathi Cement Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Binh Thuan Hamico - Vietnam
- Global Business Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Central Java Power - Indonesia
- Electricity Authority, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- GAC Shipping (India) Pvt Ltd
- Alfred C Toepfer International GmbH - Germany
- Kapuas Tunggal Persada - Indonesia
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Holcim Trading Pte Ltd - Singapore
- PetroVietnam Power Coal Import and Supply Company
- SMG Consultants - Indonesia
- Metalloyd Limited - United Kingdom
- Orica Australia Pty. Ltd.
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- New Zealand Coal & Carbon
- Georgia Ports Authority, United States
- VISA Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Wood Mackenzie - Singapore
- Wilmar Investment Holdings
- Indo Tambangraya Megah - Indonesia
- Gujarat Sidhee Cement - India
- Rio Tinto Coal - Australia
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Intertek Mineral Services - Indonesia
- Coastal Gujarat Power Limited - India
- IHS Mccloskey Coal Group - USA
- Trasteel International SA, Italy
- AsiaOL BioFuels Corp., Philippines
- Grasim Industreis Ltd - India
- GVK Power & Infra Limited - India
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Jaiprakash Power Ventures ltd
- Edison Trading Spa - Italy
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Simpson Spence & Young - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- Merrill Lynch Commodities Europe
- Commonwealth Bank - Australia
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Jindal Steel & Power Ltd - India
- Timah Investasi Mineral - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Deloitte Consulting - India
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- CNBM International Corporation - China
- White Energy Company Limited
- Riau Bara Harum - Indonesia
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
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