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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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Monday, 12 March 12
DELTA DUNIA 1M OVERBURDEN DROPS 3.1% - INSIDER STORIES
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Monday, 12 March 12
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Sunday, 11 March 12
FREIGHT RATES FOR INDONESIA TO INDIA WILL CONTINUE TO REMAIN FIRM- VISTAAR
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The BDI was up by 6.87 pct closing at 824 points ...
Friday, 09 March 12
MINING IN INDONESIA: RESTRICTION ON FOREIGN INVESTMENT - SUNIL K KUMBHAT
COALspot.com - Recently Govt has passed regulation instructing foreign mining companies to reduce their ownership stake.
The regulation known as ...
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- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Romanian Commodities Exchange
- Economic Council, Georgia
- London Commodity Brokers - England
- Medco Energi Mining Internasional
- Merrill Lynch Commodities Europe
- Sindya Power Generating Company Private Ltd
- PNOC Exploration Corporation - Philippines
- Georgia Ports Authority, United States
- International Coal Ventures Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- PowerSource Philippines DevCo
- Ind-Barath Power Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- Petron Corporation, Philippines
- Renaissance Capital - South Africa
- Thiess Contractors Indonesia
- Billiton Holdings Pty Ltd - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Alfred C Toepfer International GmbH - Germany
- Indian Energy Exchange, India
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Ambuja Cements Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Electricity Authority, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Indika Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- VISA Power Limited - India
- Power Finance Corporation Ltd., India
- Videocon Industries ltd - India
- Australian Coal Association
- Banpu Public Company Limited - Thailand
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Price Waterhouse Coopers - Russia
- Kobexindo Tractors - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- Aditya Birla Group - India
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Iligan Light & Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Transport, Egypt
- Sical Logistics Limited - India
- MS Steel International - UAE
- Trasteel International SA, Italy
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement - Thailand
- Sinarmas Energy and Mining - Indonesia
- Jindal Steel & Power Ltd - India
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Planning Commission, India
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Malabar Cements Ltd - India
- Singapore Mercantile Exchange
- Global Coal Blending Company Limited - Australia
- Kalimantan Lumbung Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Mines - Canada
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- ASAPP Information Group - India
- Bukit Makmur.PT - Indonesia
- Borneo Indobara - Indonesia
- Mjunction Services Limited - India
- Deloitte Consulting - India
- Coal and Oil Company - UAE
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- Indo Tambangraya Megah - Indonesia
- Makarim & Taira - Indonesia
- Samtan Co., Ltd - South Korea
- Cement Manufacturers Association - India
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Manunggal Multi Energi - Indonesia
- Orica Mining Services - Indonesia
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhatia International Limited - India
- Parry Sugars Refinery, India
- Ministry of Finance - Indonesia
- McConnell Dowell - Australia
- Independent Power Producers Association of India
- GN Power Mariveles Coal Plant, Philippines
- Meralco Power Generation, Philippines
- Chettinad Cement Corporation Ltd - India
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- Directorate Of Revenue Intelligence - India
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- The State Trading Corporation of India Ltd
- Sojitz Corporation - Japan
- Simpson Spence & Young - Indonesia
- Gujarat Electricity Regulatory Commission - India
- White Energy Company Limited
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- AsiaOL BioFuels Corp., Philippines
- Indonesian Coal Mining Association
- Kepco SPC Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Semirara Mining Corp, Philippines
- Rio Tinto Coal - Australia
- TeaM Sual Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Mintek Dendrill Indonesia
- Port Waratah Coal Services - Australia
- Toyota Tsusho Corporation, Japan
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- SN Aboitiz Power Inc, Philippines
- Bhushan Steel Limited - India
- Bukit Baiduri Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Larsen & Toubro Limited - India
- Timah Investasi Mineral - Indoneisa
- European Bulk Services B.V. - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Parliament of New Zealand
- Therma Luzon, Inc, Philippines
- Formosa Plastics Group - Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- Thai Mozambique Logistica
- Energy Link Ltd, New Zealand
- Metalloyd Limited - United Kingdom
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Mercuria Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- Minerals Council of Australia
- Altura Mining Limited, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Coalindo Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Interocean Group of Companies - India
- Coastal Gujarat Power Limited - India
- Wood Mackenzie - Singapore
- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Latin American Coal - Colombia
- Edison Trading Spa - Italy
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The Treasury - Australian Government
- Central Electricity Authority - India
- Eastern Energy - Thailand
- Barasentosa Lestari - Indonesia
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Mercator Lines Limited - India
- Maheswari Brothers Coal Limited - India
- Kohat Cement Company Ltd. - Pakistan
- LBH Netherlands Bv - Netherlands
- Eastern Coal Council - USA
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