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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, 14 November 23
CHINA'S BELT AND ROAD INITIATIVE TURNS AWAY FROM COAL - WOOD MACKENZIE
Ambitious, contentious and big spending, China’s Belt and Road Initiative (BRI) is 10 years old. In that time, China has splashed more than U ...
Friday, 10 November 23
THE COMMODITIES FEED: OIL UNDER PRESSURE - ING
Energy – Brent plummets
The oil market came under significant pressure yesterday. ICE Brent settled 4.19% lower on the day and ...
Friday, 10 November 23
COAL USE AT U.S. POWER PLANTS CONTINUES DOWNWARD SPIRAL; FULL IMPACT ON MINES TO BE FELT IN 2024 - IEEFA
This year, the use of coal by the U.S.’s power producers has been so anemic that the fuel has not achieved a 20% market share in any month so ...
Friday, 10 November 23
INDIA: NATIONAL COAL INDEX RISES 3.83 POINTS IN SEPTEMBER AMID HIGHER DEMAND - LIVEMINT
The National Coal Index (NCI) rose 3.83 points to 143.91 in September amid growing demand for coal.
The union coal ministry on Tuesd ...
Thursday, 09 November 23
WE'RE PRODUCING TOO MUCH COAL, OIL AND GAS, REPORT SAYS - WSJ
World leaders pledged in 2015 to reduce emissions in a combined effort to limit climate change.
Now they are stepping up production ...
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- Carbofer General Trading SA - India
- Global Green Power PLC Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Binh Thuan Hamico - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- SMC Global Power, Philippines
- Bayan Resources Tbk. - Indonesia
- Mercuria Energy - Indonesia
- PowerSource Philippines DevCo
- Kideco Jaya Agung - Indonesia
- Australian Coal Association
- Tata Chemicals Ltd - India
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Kapuas Tunggal Persada - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Kumho Petrochemical, South Korea
- Bulk Trading Sa - Switzerland
- Xindia Steels Limited - India
- Indika Energy - Indonesia
- Baramulti Group, Indonesia
- IHS Mccloskey Coal Group - USA
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Australian Commodity Traders Exchange
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Indian Oil Corporation Limited
- Jorong Barutama Greston.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Trasteel International SA, Italy
- MS Steel International - UAE
- Renaissance Capital - South Africa
- Planning Commission, India
- Commonwealth Bank - Australia
- Standard Chartered Bank - UAE
- Iligan Light & Power Inc, Philippines
- Ministry of Finance - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Price Waterhouse Coopers - Russia
- Globalindo Alam Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- Leighton Contractors Pty Ltd - Australia
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Lanco Infratech Ltd - India
- Rio Tinto Coal - Australia
- Global Business Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Petron Corporation, Philippines
- Eastern Energy - Thailand
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Bhatia International Limited - India
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- Krishnapatnam Port Company Ltd. - India
- Latin American Coal - Colombia
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- The Treasury - Australian Government
- Posco Energy - South Korea
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Pipit Mutiara Jaya. PT, Indonesia
- Vedanta Resources Plc - India
- Merrill Lynch Commodities Europe
- Chamber of Mines of South Africa
- Karaikal Port Pvt Ltd - India
- ASAPP Information Group - India
- TeaM Sual Corporation - Philippines
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Mintek Dendrill Indonesia
- Global Coal Blending Company Limited - Australia
- San Jose City I Power Corp, Philippines
- Economic Council, Georgia
- Attock Cement Pakistan Limited
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
- Altura Mining Limited, Indonesia
- Interocean Group of Companies - India
- Edison Trading Spa - Italy
- Sarangani Energy Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Dalmia Cement Bharat India
- India Bulls Power Limited - India
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Bahari Cakrawala Sebuku - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Meralco Power Generation, Philippines
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- Central Electricity Authority - India
- Siam City Cement PLC, Thailand
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Sical Logistics Limited - India
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- SMG Consultants - Indonesia
- GVK Power & Infra Limited - India
- Sojitz Corporation - Japan
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Georgia Ports Authority, United States
- PTC India Limited - India
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Aditya Birla Group - India
- Billiton Holdings Pty Ltd - Australia
- SN Aboitiz Power Inc, Philippines
- Gujarat Sidhee Cement - India
- Kobexindo Tractors - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Orica Mining Services - Indonesia
- CNBM International Corporation - China
- Antam Resourcindo - Indonesia
- Metalloyd Limited - United Kingdom
- Mjunction Services Limited - India
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Wood Mackenzie - Singapore
- Therma Luzon, Inc, Philippines
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- Salva Resources Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Formosa Plastics Group - Taiwan
- IEA Clean Coal Centre - UK
- McConnell Dowell - Australia
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Miang Besar Coal Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Port Waratah Coal Services - Australia
- Gujarat Electricity Regulatory Commission - India
- Borneo Indobara - Indonesia
- New Zealand Coal & Carbon
- Alfred C Toepfer International GmbH - Germany
- Minerals Council of Australia
- Aboitiz Power Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Ambuja Cements Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- ICICI Bank Limited - India
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Wilmar Investment Holdings
- Banpu Public Company Limited - Thailand
- Bhushan Steel Limited - India
- Pendopo Energi Batubara - Indonesia
- Coal and Oil Company - UAE
- Agrawal Coal Company - India
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Mercator Lines Limited - India
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- LBH Netherlands Bv - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Power Finance Corporation Ltd., India
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