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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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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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Showing 61 to 65 news of total 6871 |
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- Krishnapatnam Port Company Ltd. - India
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- GAC Shipping (India) Pvt Ltd
- Thiess Contractors Indonesia
- Thai Mozambique Logistica
- Renaissance Capital - South Africa
- Romanian Commodities Exchange
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Parry Sugars Refinery, India
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement PLC, Thailand
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Planning Commission, India
- Vijayanagar Sugar Pvt Ltd - India
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Siam City Cement - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Manunggal Multi Energi - Indonesia
- Australian Coal Association
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Minerals Council of Australia
- Karaikal Port Pvt Ltd - India
- Bhatia International Limited - India
- OPG Power Generation Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Indo Tambangraya Megah - Indonesia
- London Commodity Brokers - England
- McConnell Dowell - Australia
- Mintek Dendrill Indonesia
- European Bulk Services B.V. - Netherlands
- Alfred C Toepfer International GmbH - Germany
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Tata Chemicals Ltd - India
- Altura Mining Limited, Indonesia
- Bangladesh Power Developement Board
- Aditya Birla Group - India
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- MS Steel International - UAE
- Riau Bara Harum - Indonesia
- ASAPP Information Group - India
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Mercator Lines Limited - India
- Salva Resources Pvt Ltd - India
- Indonesian Coal Mining Association
- Banpu Public Company Limited - Thailand
- Marubeni Corporation - India
- Wood Mackenzie - Singapore
- Vedanta Resources Plc - India
- Sojitz Corporation - Japan
- Kalimantan Lumbung Energi - Indonesia
- The University of Queensland
- Jaiprakash Power Ventures ltd
- Leighton Contractors Pty Ltd - Australia
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Global Coal Blending Company Limited - Australia
- Chettinad Cement Corporation Ltd - India
- PTC India Limited - India
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- Indika Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Mercuria Energy - Indonesia
- GVK Power & Infra Limited - India
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Sical Logistics Limited - India
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Cement Manufacturers Association - India
- Indian Energy Exchange, India
- Toyota Tsusho Corporation, Japan
- Independent Power Producers Association of India
- Kohat Cement Company Ltd. - Pakistan
- Central Java Power - Indonesia
- Bhushan Steel Limited - India
- Standard Chartered Bank - UAE
- Africa Commodities Group - South Africa
- Ambuja Cements Ltd - India
- Kideco Jaya Agung - Indonesia
- Indian Oil Corporation Limited
- Carbofer General Trading SA - India
- Energy Development Corp, Philippines
- Bulk Trading Sa - Switzerland
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- India Bulls Power Limited - India
- GMR Energy Limited - India
- Meralco Power Generation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Grasim Industreis Ltd - India
- Coalindo Energy - Indonesia
- Agrawal Coal Company - India
- Economic Council, Georgia
- Timah Investasi Mineral - Indoneisa
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Bhoruka Overseas - Indonesia
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Metalloyd Limited - United Kingdom
- Barasentosa Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Savvy Resources Ltd - HongKong
- Bank of Tokyo Mitsubishi UFJ Ltd
- AsiaOL BioFuels Corp., Philippines
- ICICI Bank Limited - India
- Sarangani Energy Corporation, Philippines
- IEA Clean Coal Centre - UK
- Oldendorff Carriers - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Attock Cement Pakistan Limited
- TNB Fuel Sdn Bhd - Malaysia
- Parliament of New Zealand
- Goldman Sachs - Singapore
- Coastal Gujarat Power Limited - India
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- Power Finance Corporation Ltd., India
- Jorong Barutama Greston.PT - Indonesia
- Uttam Galva Steels Limited - India
- Deloitte Consulting - India
- Coal and Oil Company - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- Wilmar Investment Holdings
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- SMC Global Power, Philippines
- Electricity Authority, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Sinarmas Energy and Mining - Indonesia
- Orica Australia Pty. Ltd.
- Asmin Koalindo Tuhup - Indonesia
- Maheswari Brothers Coal Limited - India
- Chamber of Mines of South Africa
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Billiton Holdings Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Rio Tinto Coal - Australia
- Aboitiz Power Corporation - Philippines
- The State Trading Corporation of India Ltd
- Latin American Coal - Colombia
- Madhucon Powers Ltd - India
- SMG Consultants - Indonesia
- CIMB Investment Bank - Malaysia
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Lanco Infratech Ltd - India
- Globalindo Alam Lestari - Indonesia
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- Formosa Plastics Group - Taiwan
- Interocean Group of Companies - India
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Georgia Ports Authority, United States
- Bukit Asam (Persero) Tbk - Indonesia
- Tamil Nadu electricity Board
- Port Waratah Coal Services - Australia
- IHS Mccloskey Coal Group - USA
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- White Energy Company Limited
- Trasteel International SA, Italy
- Eastern Energy - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Petron Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Merrill Lynch Commodities Europe
- Straits Asia Resources Limited - Singapore
- Miang Besar Coal Terminal - Indonesia
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