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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, 07 March 12
ASSESS ASIAS POTENTIAL, DEVELOPMENTS AND APPETITE FOR SHALE AT SHALE GAS SUMMIT
Press Release - Assess Asia’s Potential, Developments and Appetite for Shale at Shale Gas Summit on 23-24 Apr, 2012 in Beijing
China is rep ...
Wednesday, 07 March 12
3RD MOZAMBIQUE COAL CONFERENCE
3rd Mozambique Coal Conference
2-4 July 2012 | Joaquim Chissano International Conference Centre , Maputo, Mozambique
http://www.immevents.com/mo ...
Wednesday, 07 March 12
DRY BULK MARKET KEEPS UP TIMID REBOUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept its rising momentum yesterday, rising for the eighth straight session, on the back of renewed demand for smaller bulk c ...
Wednesday, 07 March 12
BUKIT ASAM EYES 39% RISE IN COAL SALES - INSIDER STORIES
Insider Stories reported that, PT Bukit Asam Tbk is scouting a 39% increase in coal sales volume to 18.66 million tons this year from last year with ...
Wednesday, 07 March 12
PETROSEA SEALS US$188 MIO CONTRACT - INSIDER STORIES
Insider Stories reported that, coal mining contractor PT Petrosea Tbk has secured a US$188 million additional contract from its affiliated firm PT S ...
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- TNB Fuel Sdn Bhd - Malaysia
- Marubeni Corporation - India
- Kumho Petrochemical, South Korea
- Uttam Galva Steels Limited - India
- MS Steel International - UAE
- Semirara Mining Corp, Philippines
- Goldman Sachs - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- CIMB Investment Bank - Malaysia
- Kaltim Prima Coal - Indonesia
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Ind-Barath Power Infra Limited - India
- Bhatia International Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Bukit Baiduri Energy - Indonesia
- Madhucon Powers Ltd - India
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- LBH Netherlands Bv - Netherlands
- PowerSource Philippines DevCo
- Ministry of Mines - Canada
- Parliament of New Zealand
- Straits Asia Resources Limited - Singapore
- Directorate Of Revenue Intelligence - India
- Eastern Energy - Thailand
- Georgia Ports Authority, United States
- Indonesian Coal Mining Association
- Baramulti Group, Indonesia
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Electricity Authority, New Zealand
- Mjunction Services Limited - India
- Sarangani Energy Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Vedanta Resources Plc - India
- Planning Commission, India
- Savvy Resources Ltd - HongKong
- Petrochimia International Co. Ltd.- Taiwan
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Kobexindo Tractors - Indoneisa
- GVK Power & Infra Limited - India
- Mercuria Energy - Indonesia
- Bangladesh Power Developement Board
- Miang Besar Coal Terminal - Indonesia
- Interocean Group of Companies - India
- VISA Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- White Energy Company Limited
- McConnell Dowell - Australia
- London Commodity Brokers - England
- Thai Mozambique Logistica
- Sree Jayajothi Cements Limited - India
- TeaM Sual Corporation - Philippines
- ASAPP Information Group - India
- International Coal Ventures Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Maharashtra Electricity Regulatory Commission - India
- Port Waratah Coal Services - Australia
- Singapore Mercantile Exchange
- GAC Shipping (India) Pvt Ltd
- European Bulk Services B.V. - Netherlands
- IHS Mccloskey Coal Group - USA
- Jaiprakash Power Ventures ltd
- The University of Queensland
- SMG Consultants - Indonesia
- Makarim & Taira - Indonesia
- Globalindo Alam Lestari - Indonesia
- Banpu Public Company Limited - Thailand
- Bharathi Cement Corporation - India
- Kideco Jaya Agung - Indonesia
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Aditya Birla Group - India
- Meenaskhi Energy Private Limited - India
- PNOC Exploration Corporation - Philippines
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- Tamil Nadu electricity Board
- Bahari Cakrawala Sebuku - Indonesia
- Antam Resourcindo - Indonesia
- Ministry of Finance - Indonesia
- Karaikal Port Pvt Ltd - India
- New Zealand Coal & Carbon
- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Orica Mining Services - Indonesia
- Siam City Cement - Thailand
- Economic Council, Georgia
- India Bulls Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Cigading International Bulk Terminal - Indonesia
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Sojitz Corporation - Japan
- Aboitiz Power Corporation - Philippines
- Edison Trading Spa - Italy
- Trasteel International SA, Italy
- Samtan Co., Ltd - South Korea
- Price Waterhouse Coopers - Russia
- Xindia Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Indogreen Group - Indonesia
- Deloitte Consulting - India
- Latin American Coal - Colombia
- Standard Chartered Bank - UAE
- Barasentosa Lestari - Indonesia
- Chamber of Mines of South Africa
- Malabar Cements Ltd - India
- Semirara Mining and Power Corporation, Philippines
- SMC Global Power, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thiess Contractors Indonesia
- Central Java Power - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Lanco Infratech Ltd - India
- Indian Oil Corporation Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sakthi Sugars Limited - India
- Salva Resources Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Medco Energi Mining Internasional
- Toyota Tsusho Corporation, Japan
- PTC India Limited - India
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- The State Trading Corporation of India Ltd
- Binh Thuan Hamico - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bukit Asam (Persero) Tbk - Indonesia
- CNBM International Corporation - China
- Pendopo Energi Batubara - Indonesia
- Jindal Steel & Power Ltd - India
- Riau Bara Harum - Indonesia
- Minerals Council of Australia
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Altura Mining Limited, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Simpson Spence & Young - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Commonwealth Bank - Australia
- PetroVietnam Power Coal Import and Supply Company
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Merrill Lynch Commodities Europe
- Manunggal Multi Energi - Indonesia
- Sical Logistics Limited - India
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Kalimantan Lumbung Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Intertek Mineral Services - Indonesia
- Bayan Resources Tbk. - Indonesia
- Ministry of Transport, Egypt
- South Luzon Thermal Energy Corporation
- Bhushan Steel Limited - India
- Independent Power Producers Association of India
- Agrawal Coal Company - India
- Australian Commodity Traders Exchange
- Indika Energy - Indonesia
- Heidelberg Cement - Germany
- Rio Tinto Coal - Australia
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Indian Energy Exchange, India
- Dalmia Cement Bharat India
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Electricity Generating Authority of Thailand
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