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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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Sunday, 18 March 12
BUKIT ASAM'S NET PROFIT IN 2011 ROSE 54% TO US$ 339.56 MILLION
COALspot.com - Company revenue for the period January - December 2011 amounting to Rp 10.6 trillion (approximately US$ 1,164,835,164.84) recorded an ...
Saturday, 17 March 12
THE FREIGHT RATES FOR INDONESIA TO INDIA REMAINED FIRM - VISTAAR SINGAPORE
COALspot.com - The market continued to be firm and all segments were up except for Cape Index which was down by 2.46 pct closing at 1,466 points.
...
Saturday, 17 March 12
INDIAN GOVT FINALIZES DRAFT BILL FOR COAL REGULATOR - PTI
The coal sector would soon get a regulator as the government has finalised a draft bill for the purpose, Coal Minister Sriprakash Jaiswal said Wedne ...
Friday, 16 March 12
THE PACIFIC MARKET IS FIRMING UP - FEARNLEYS AS
Handy
A slightly positive trend was seen last week in the Atlantic. Skaw-Passero deliveries fixed around USD 3k to US Gulf, while US Gulf deliveres ...
Thursday, 15 March 12
RAINS AVERAGE SELLING PRICE OF COAL WENT UP BY 22 % IN 2011
COALspot.com - PT. Resource Alam Indonesia Tbk, an Indonesian CCoW (3rd Generation) holder reported Wednesday a 171 percent increase in net profits ...
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- Bangladesh Power Developement Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Georgia Ports Authority, United States
- Australian Coal Association
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- Therma Luzon, Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Videocon Industries ltd - India
- Altura Mining Limited, Indonesia
- Goldman Sachs - Singapore
- Global Business Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Mintek Dendrill Indonesia
- Energy Link Ltd, New Zealand
- Electricity Authority, New Zealand
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kobexindo Tractors - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- Bukit Makmur.PT - Indonesia
- Medco Energi Mining Internasional
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- Oldendorff Carriers - Singapore
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- Bhoruka Overseas - Indonesia
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- Agrawal Coal Company - India
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- Formosa Plastics Group - Taiwan
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- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Dalmia Cement Bharat India
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- The University of Queensland
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- Coastal Gujarat Power Limited - India
- MS Steel International - UAE
- OPG Power Generation Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- India Bulls Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bhatia International Limited - India
- Power Finance Corporation Ltd., India
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Chettinad Cement Corporation Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Aboitiz Power Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
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- Makarim & Taira - Indonesia
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- GN Power Mariveles Coal Plant, Philippines
- White Energy Company Limited
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Antam Resourcindo - Indonesia
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Coalindo Energy - Indonesia
- PowerSource Philippines DevCo
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- ASAPP Information Group - India
- Latin American Coal - Colombia
- Star Paper Mills Limited - India
- Minerals Council of Australia
- Wilmar Investment Holdings
- Planning Commission, India
- Parliament of New Zealand
- Tamil Nadu electricity Board
- Attock Cement Pakistan Limited
- Posco Energy - South Korea
- Interocean Group of Companies - India
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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- Intertek Mineral Services - Indonesia
- Essar Steel Hazira Ltd - India
- San Jose City I Power Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Malabar Cements Ltd - India
- Orica Mining Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Australian Commodity Traders Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Barasentosa Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Indogreen Group - Indonesia
- Port Waratah Coal Services - Australia
- Indo Tambangraya Megah - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Marubeni Corporation - India
- Grasim Industreis Ltd - India
- Singapore Mercantile Exchange
- Mercator Lines Limited - India
- Timah Investasi Mineral - Indoneisa
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- Xindia Steels Limited - India
- CIMB Investment Bank - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- Independent Power Producers Association of India
- Central Electricity Authority - India
- Sarangani Energy Corporation, Philippines
- Commonwealth Bank - Australia
- Gujarat Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Siam City Cement - Thailand
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- Jorong Barutama Greston.PT - Indonesia
- Romanian Commodities Exchange
- ICICI Bank Limited - India
- Sindya Power Generating Company Private Ltd
- Trasteel International SA, Italy
- Toyota Tsusho Corporation, Japan
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Ministry of Finance - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Iligan Light & Power Inc, Philippines
- Carbofer General Trading SA - India
- GMR Energy Limited - India
- Energy Development Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- Tata Chemicals Ltd - India
- Indika Energy - Indonesia
- Meralco Power Generation, Philippines
- Mercuria Energy - Indonesia
- Sojitz Corporation - Japan
- New Zealand Coal & Carbon
- Uttam Galva Steels Limited - India
- Straits Asia Resources Limited - Singapore
- SMG Consultants - Indonesia
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- Manunggal Multi Energi - Indonesia
- Ministry of Mines - Canada
- Baramulti Group, Indonesia
- Aditya Birla Group - India
- Central Java Power - Indonesia
- Kumho Petrochemical, South Korea
- Parry Sugars Refinery, India
- Wood Mackenzie - Singapore
- Savvy Resources Ltd - HongKong
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- Bharathi Cement Corporation - India
- Eastern Energy - Thailand
- PTC India Limited - India
- GVK Power & Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Heidelberg Cement - Germany
- IHS Mccloskey Coal Group - USA
- Anglo American - United Kingdom
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Petron Corporation, Philippines
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- London Commodity Brokers - England
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