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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, 05 March 12
SOUTHGOBI ANNOUNCES AGREEMENT TO SELL ITS THERMAL COAL TSAGAAN TOLGOI DEPOSIT FOR US$ 30 MILLION
SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) announced today an agreement to sell its thermal coal property, the Tsagaan Tolgoi Deposit to Modun Re ...
Monday, 05 March 12
SOME RESOURCE TITANS NOT THRILLED WITH INDONESIAN EXPORT BAN - THE JAKARTA GLOBE
The Jakarta Globe reported that, local representatives of major business associations in East Kalimantan have protested a government regulation that ...
Monday, 05 March 12
WEEKLY DRY MARKET OVERVIEW - MARIA BERTZELETOU, HELLENIC SHIPPING
An air of optimism poured in the market this week for dry bulk shippers with the Baltic Dry Index recording daily gains during the end of February b ...
Sunday, 04 March 12
SE ASIA WAS FIRM FOR TRIPS TO INDIA AND CHINA - VISTAAR
COALspot.com - This week saw another upward trend with all indices up and generally market was firm.
The BDI was up by 7.38 pct closing at 771 po ...
Friday, 02 March 12
DJMBP HAS ANNOUNCED SECOND BATCH OF CLEAR N CLEAN CERTIFIED MINERS
COALspot.com - The Directorate general of mineral & coal of Indonesia has announced second batch of companies who have passed IUP Clear and Clea ...
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- Minerals Council of Australia
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- Holcim Trading Pte Ltd - Singapore
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Manunggal Multi Energi - Indonesia
- Makarim & Taira - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Orica Australia Pty. Ltd.
- Central Java Power - Indonesia
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- Electricity Generating Authority of Thailand
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- Planning Commission, India
- Chamber of Mines of South Africa
- Mintek Dendrill Indonesia
- Karbindo Abesyapradhi - Indoneisa
- New Zealand Coal & Carbon
- Global Green Power PLC Corporation, Philippines
- Edison Trading Spa - Italy
- Videocon Industries ltd - India
- Standard Chartered Bank - UAE
- Toyota Tsusho Corporation, Japan
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Bulk Trading Sa - Switzerland
- Ind-Barath Power Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Kaltim Prima Coal - Indonesia
- Energy Link Ltd, New Zealand
- Latin American Coal - Colombia
- Sojitz Corporation - Japan
- Timah Investasi Mineral - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Sree Jayajothi Cements Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Cement Manufacturers Association - India
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- Renaissance Capital - South Africa
- Coal and Oil Company - UAE
- Mjunction Services Limited - India
- Marubeni Corporation - India
- Deloitte Consulting - India
- Jindal Steel & Power Ltd - India
- Indogreen Group - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Global Business Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Singapore Mercantile Exchange
- Australian Commodity Traders Exchange
- Ministry of Mines - Canada
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- Sarangani Energy Corporation, Philippines
- Indika Energy - Indonesia
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Commonwealth Bank - Australia
- Australian Coal Association
- Aboitiz Power Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- Bukit Baiduri Energy - Indonesia
- Thiess Contractors Indonesia
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Posco Energy - South Korea
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- SMC Global Power, Philippines
- Therma Luzon, Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- Globalindo Alam Lestari - Indonesia
- Coastal Gujarat Power Limited - India
- Vizag Seaport Private Limited - India
- San Jose City I Power Corp, Philippines
- Coalindo Energy - Indonesia
- Ambuja Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Wilmar Investment Holdings
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Lanco Infratech Ltd - India
- Straits Asia Resources Limited - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Essar Steel Hazira Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Gujarat Sidhee Cement - India
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- VISA Power Limited - India
- Eastern Coal Council - USA
- Kobexindo Tractors - Indoneisa
- Borneo Indobara - Indonesia
- Price Waterhouse Coopers - Russia
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- The State Trading Corporation of India Ltd
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Interocean Group of Companies - India
- Attock Cement Pakistan Limited
- Directorate General of MIneral and Coal - Indonesia
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Mercator Lines Limited - India
- London Commodity Brokers - England
- The Treasury - Australian Government
- Vedanta Resources Plc - India
- Salva Resources Pvt Ltd - India
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Parliament of New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Central Electricity Authority - India
- ASAPP Information Group - India
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- Indian Energy Exchange, India
- Meenaskhi Energy Private Limited - India
- Bhatia International Limited - India
- Wood Mackenzie - Singapore
- Romanian Commodities Exchange
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Mercuria Energy - Indonesia
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- Sakthi Sugars Limited - India
- Sical Logistics Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Grasim Industreis Ltd - India
- Siam City Cement - Thailand
- Tamil Nadu electricity Board
- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ICICI Bank Limited - India
- Alfred C Toepfer International GmbH - Germany
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Indo Tambangraya Megah - Indonesia
- Binh Thuan Hamico - Vietnam
- Bharathi Cement Corporation - India
- India Bulls Power Limited - India
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- Asmin Koalindo Tuhup - Indonesia
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Thai Mozambique Logistica
- The University of Queensland
- Oldendorff Carriers - Singapore
- GMR Energy Limited - India
- SMG Consultants - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Ceylon Electricity Board - Sri Lanka
- Bukit Asam (Persero) Tbk - Indonesia
- Parry Sugars Refinery, India
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Finance - Indonesia
- Georgia Ports Authority, United States
- Antam Resourcindo - Indonesia
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- Kartika Selabumi Mining - Indonesia
- Eastern Energy - Thailand
- Star Paper Mills Limited - India
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- Merrill Lynch Commodities Europe
- MS Steel International - UAE
- Power Finance Corporation Ltd., India
- Larsen & Toubro Limited - India
- Billiton Holdings Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- Intertek Mineral Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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