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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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Showing 56 to 60 news of total 6871 |
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- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- Lanco Infratech Ltd - India
- Salva Resources Pvt Ltd - India
- Australian Coal Association
- Siam City Cement - Thailand
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Meralco Power Generation, Philippines
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Metalloyd Limited - United Kingdom
- SN Aboitiz Power Inc, Philippines
- Central Java Power - Indonesia
- CNBM International Corporation - China
- Global Business Power Corporation, Philippines
- Wilmar Investment Holdings
- Banpu Public Company Limited - Thailand
- Ind-Barath Power Infra Limited - India
- ICICI Bank Limited - India
- McConnell Dowell - Australia
- Orica Australia Pty. Ltd.
- Indonesian Coal Mining Association
- Dalmia Cement Bharat India
- PowerSource Philippines DevCo
- Gujarat Sidhee Cement - India
- Parry Sugars Refinery, India
- Riau Bara Harum - Indonesia
- Vizag Seaport Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- ASAPP Information Group - India
- European Bulk Services B.V. - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Jaiprakash Power Ventures ltd
- Anglo American - United Kingdom
- VISA Power Limited - India
- Singapore Mercantile Exchange
- Gujarat Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Kapuas Tunggal Persada - Indonesia
- Altura Mining Limited, Indonesia
- GMR Energy Limited - India
- Deloitte Consulting - India
- Bukit Makmur.PT - Indonesia
- Kepco SPC Power Corporation, Philippines
- Indika Energy - Indonesia
- Attock Cement Pakistan Limited
- Mercator Lines Limited - India
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- Chettinad Cement Corporation Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Kobexindo Tractors - Indoneisa
- London Commodity Brokers - England
- Bayan Resources Tbk. - Indonesia
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Ambuja Cements Ltd - India
- Coal and Oil Company - UAE
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- MS Steel International - UAE
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- IEA Clean Coal Centre - UK
- Karaikal Port Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Bhoruka Overseas - Indonesia
- LBH Netherlands Bv - Netherlands
- Bangladesh Power Developement Board
- Economic Council, Georgia
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- Sarangani Energy Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- GAC Shipping (India) Pvt Ltd
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Goldman Sachs - Singapore
- International Coal Ventures Pvt Ltd - India
- Eastern Energy - Thailand
- Ministry of Transport, Egypt
- Semirara Mining Corp, Philippines
- Barasentosa Lestari - Indonesia
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- Posco Energy - South Korea
- Eastern Coal Council - USA
- IHS Mccloskey Coal Group - USA
- Leighton Contractors Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- Aboitiz Power Corporation - Philippines
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- PNOC Exploration Corporation - Philippines
- The State Trading Corporation of India Ltd
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Tamil Nadu electricity Board
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Kumho Petrochemical, South Korea
- Interocean Group of Companies - India
- Antam Resourcindo - Indonesia
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Maharashtra Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Price Waterhouse Coopers - Russia
- Port Waratah Coal Services - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Generating Authority of Thailand
- AsiaOL BioFuels Corp., Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Iligan Light & Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Jindal Steel & Power Ltd - India
- Maheswari Brothers Coal Limited - India
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- Straits Asia Resources Limited - Singapore
- Meenaskhi Energy Private Limited - India
- Global Coal Blending Company Limited - Australia
- Carbofer General Trading SA - India
- Merrill Lynch Commodities Europe
- Bhushan Steel Limited - India
- Commonwealth Bank - Australia
- Medco Energi Mining Internasional
- Sree Jayajothi Cements Limited - India
- SMC Global Power, Philippines
- White Energy Company Limited
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Timah Investasi Mineral - Indoneisa
- Sakthi Sugars Limited - India
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- India Bulls Power Limited - India
- Mintek Dendrill Indonesia
- Sojitz Corporation - Japan
- GVK Power & Infra Limited - India
- Aditya Birla Group - India
- Tata Chemicals Ltd - India
- Mjunction Services Limited - India
- Indogreen Group - Indonesia
- Australian Commodity Traders Exchange
- Kideco Jaya Agung - Indonesia
- Coalindo Energy - Indonesia
- Georgia Ports Authority, United States
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Pipit Mutiara Jaya. PT, Indonesia
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Madhucon Powers Ltd - India
- Ministry of Finance - Indonesia
- Orica Mining Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- OPG Power Generation Pvt Ltd - India
- Planning Commission, India
- Central Electricity Authority - India
- Star Paper Mills Limited - India
- Therma Luzon, Inc, Philippines
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Kartika Selabumi Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Intertek Mineral Services - Indonesia
- Sical Logistics Limited - India
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