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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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Wednesday, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
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- Sakthi Sugars Limited - India
- Central Java Power - Indonesia
- VISA Power Limited - India
- Sical Logistics Limited - India
- Global Coal Blending Company Limited - Australia
- Iligan Light & Power Inc, Philippines
- Baramulti Group, Indonesia
- Chamber of Mines of South Africa
- Australian Coal Association
- Altura Mining Limited, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Indika Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- Metalloyd Limited - United Kingdom
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- The Treasury - Australian Government
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Bayan Resources Tbk. - Indonesia
- ASAPP Information Group - India
- Bharathi Cement Corporation - India
- Bhoruka Overseas - Indonesia
- ICICI Bank Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining Corp, Philippines
- Jindal Steel & Power Ltd - India
- Singapore Mercantile Exchange
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- Interocean Group of Companies - India
- Borneo Indobara - Indonesia
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- CIMB Investment Bank - Malaysia
- Petron Corporation, Philippines
- CNBM International Corporation - China
- The University of Queensland
- Indogreen Group - Indonesia
- Global Green Power PLC Corporation, Philippines
- Thai Mozambique Logistica
- Krishnapatnam Port Company Ltd. - India
- Independent Power Producers Association of India
- Trasteel International SA, Italy
- Carbofer General Trading SA - India
- Kepco SPC Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Sidhee Cement - India
- Kalimantan Lumbung Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Electricity Authority, New Zealand
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- White Energy Company Limited
- Sarangani Energy Corporation, Philippines
- Ambuja Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Bangladesh Power Developement Board
- Straits Asia Resources Limited - Singapore
- Grasim Industreis Ltd - India
- Coalindo Energy - Indonesia
- Vizag Seaport Private Limited - India
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Planning Commission, India
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Aditya Birla Group - India
- Power Finance Corporation Ltd., India
- Orica Mining Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Mercuria Energy - Indonesia
- Bhatia International Limited - India
- Alfred C Toepfer International GmbH - Germany
- Georgia Ports Authority, United States
- Central Electricity Authority - India
- McConnell Dowell - Australia
- Bukit Makmur.PT - Indonesia
- Rio Tinto Coal - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Global Business Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Edison Trading Spa - Italy
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Karbindo Abesyapradhi - Indoneisa
- Eastern Energy - Thailand
- Parry Sugars Refinery, India
- Merrill Lynch Commodities Europe
- Essar Steel Hazira Ltd - India
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Tamil Nadu electricity Board
- Energy Development Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kideco Jaya Agung - Indonesia
- Formosa Plastics Group - Taiwan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coal and Oil Company - UAE
- Romanian Commodities Exchange
- Maheswari Brothers Coal Limited - India
- Cement Manufacturers Association - India
- Eastern Coal Council - USA
- Ministry of Mines - Canada
- TeaM Sual Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Standard Chartered Bank - UAE
- Mintek Dendrill Indonesia
- Kapuas Tunggal Persada - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- IHS Mccloskey Coal Group - USA
- Siam City Cement PLC, Thailand
- Agrawal Coal Company - India
- Thiess Contractors Indonesia
- Australian Commodity Traders Exchange
- The State Trading Corporation of India Ltd
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Wilmar Investment Holdings
- Energy Link Ltd, New Zealand
- Port Waratah Coal Services - Australia
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Africa Commodities Group - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sojitz Corporation - Japan
- Larsen & Toubro Limited - India
- PTC India Limited - India
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Makarim & Taira - Indonesia
- Jaiprakash Power Ventures ltd
- Coastal Gujarat Power Limited - India
- Salva Resources Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Mercator Lines Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Vedanta Resources Plc - India
- Aboitiz Power Corporation - Philippines
- India Bulls Power Limited - India
- GVK Power & Infra Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Attock Cement Pakistan Limited
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Anglo American - United Kingdom
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Posco Energy - South Korea
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