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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, 01 December 23
COAL MINERS GROUP EXPECTS INDONESIA’S 2023 COAL OUTPUT TO SURPASS TARGET - REUTERS
The Indonesian Coal Mining Association (ICMA) expects the country’s 2023 coal output to surpass the official target of 695 million metric ton ...
Friday, 24 November 23
COAL IMPORTS TO INDIA IN OCTOBER 2023 REACHED HIGHEST LEVELS IN NEARLY A YEAR AND A HALF - VESSELSVALUE, VESON NAUTICAL
In October, coal imports to India reached 13.8 mt in October 2023, according to Oceanbolt, a Veson Nautical solution, the highest level since May 2 ...
Friday, 24 November 23
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In the first ten months of 2023, coal shipments to advanced economies fell by 17% y/y, as demand for electricity declined and the share of electric ...
Friday, 24 November 23
INTELLIGENT COAL MINES CONTRIBUTE TO IMPROVING SAFETY STANDARDS - CHINA DAILY
Mechanization, automation and intelligent upgrades have contributed to improved safety in coal mines, though the level of development of intelligen ...
Friday, 24 November 23
WHY AUSTRALIA'S COAL MINES ARE GETTING BIGGER - IEEFA
Australia’s largest coal mines are getting larger. Mines in New South Wales (NSW) are ramping up production following the state’s recov ...
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- Altura Mining Limited, Indonesia
- Larsen & Toubro Limited - India
- Port Waratah Coal Services - Australia
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Holcim Trading Pte Ltd - Singapore
- White Energy Company Limited
- Vizag Seaport Private Limited - India
- Goldman Sachs - Singapore
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- Banpu Public Company Limited - Thailand
- Ceylon Electricity Board - Sri Lanka
- Indogreen Group - Indonesia
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Parliament of New Zealand
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Trasteel International SA, Italy
- Meralco Power Generation, Philippines
- ICICI Bank Limited - India
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- Alfred C Toepfer International GmbH - Germany
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Aditya Birla Group - India
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- Bhatia International Limited - India
- Krishnapatnam Port Company Ltd. - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Kapuas Tunggal Persada - Indonesia
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- CNBM International Corporation - China
- Coastal Gujarat Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- SMC Global Power, Philippines
- Kohat Cement Company Ltd. - Pakistan
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
- Mercator Lines Limited - India
- Antam Resourcindo - Indonesia
- Straits Asia Resources Limited - Singapore
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- Ministry of Finance - Indonesia
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Maheswari Brothers Coal Limited - India
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Independent Power Producers Association of India
- Siam City Cement PLC, Thailand
- Sinarmas Energy and Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Thiess Contractors Indonesia
- OPG Power Generation Pvt Ltd - India
- Bangladesh Power Developement Board
- Price Waterhouse Coopers - Russia
- Orica Mining Services - Indonesia
- Central Java Power - Indonesia
- New Zealand Coal & Carbon
- Global Coal Blending Company Limited - Australia
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- South Luzon Thermal Energy Corporation
- Marubeni Corporation - India
- Medco Energi Mining Internasional
- Malabar Cements Ltd - India
- IEA Clean Coal Centre - UK
- Metalloyd Limited - United Kingdom
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Globalindo Alam Lestari - Indonesia
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Australian Commodity Traders Exchange
- Leighton Contractors Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- McConnell Dowell - Australia
- Maharashtra Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Simpson Spence & Young - Indonesia
- Sakthi Sugars Limited - India
- Global Business Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- San Jose City I Power Corp, Philippines
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Bulk Trading Sa - Switzerland
- PNOC Exploration Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- Kepco SPC Power Corporation, Philippines
- Thai Mozambique Logistica
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Grasim Industreis Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Ambuja Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Oldendorff Carriers - Singapore
- Tamil Nadu electricity Board
- India Bulls Power Limited - India
- Kumho Petrochemical, South Korea
- Manunggal Multi Energi - Indonesia
- Standard Chartered Bank - UAE
- Bukit Makmur.PT - Indonesia
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Mjunction Services Limited - India
- Bharathi Cement Corporation - India
- MS Steel International - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bayan Resources Tbk. - Indonesia
- Semirara Mining and Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Georgia Ports Authority, United States
- Renaissance Capital - South Africa
- Directorate Of Revenue Intelligence - India
- Bhoruka Overseas - Indonesia
- Savvy Resources Ltd - HongKong
- Ministry of Mines - Canada
- GVK Power & Infra Limited - India
- GAC Shipping (India) Pvt Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indika Energy - Indonesia
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- Essar Steel Hazira Ltd - India
- Samtan Co., Ltd - South Korea
- Australian Coal Association
- Global Green Power PLC Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Mintek Dendrill Indonesia
- Commonwealth Bank - Australia
- Lanco Infratech Ltd - India
- Attock Cement Pakistan Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Makarim & Taira - Indonesia
- Meenaskhi Energy Private Limited - India
- Riau Bara Harum - Indonesia
- PTC India Limited - India
- The University of Queensland
- Sindya Power Generating Company Private Ltd
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Energy Development Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Orica Australia Pty. Ltd.
- Directorate General of MIneral and Coal - Indonesia
- Edison Trading Spa - Italy
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Coal and Oil Company - UAE
- Intertek Mineral Services - Indonesia
- Karaikal Port Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Sidhee Cement - India
- Parry Sugars Refinery, India
- European Bulk Services B.V. - Netherlands
- Agrawal Coal Company - India
- Deloitte Consulting - India
- Coalindo Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Eastern Coal Council - USA
- Merrill Lynch Commodities Europe
- Indian Energy Exchange, India
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