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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, 27 February 12
INDONESIAN COAL EXPORTS TO CHINA DROPS 39.76 PERCENT IN JANUARY 2012
COALspot.com: Indonesia, the world largest coal exporter, shipped 28.21* mln mt of coal in January 2012, slightly lower than its December 2011 ...
Monday, 27 February 12
WEEKLY DRY MARKET OVERVIEW - MARIA BERTZELETOU, HELLENIC SHIPPING
The pessimism in the dry market persists with the Baltic Dry Index still trying to find a steady pace of growth and average time charter earnings fo ...
Sunday, 26 February 12
THE FREIGHT RATES FOR INDONESIA TO INDIA IS LIKELY TO BE FIRM FOR NEXT 2/3 WEEKS - VISTAAR
COALspot.com – “There was not much change in the BDI and other indices this week except for the Panamax which was down by 11.91 pc ...
Friday, 24 February 12
DRY BULK MARKET POSTS FIRST REBOUND IN A WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
As was expected since mid-week, the dry bulk market's benchmark, the BDI (Baltic Dry Index) has managed to put a stop in a 6-day losing rally, endi ...
Thursday, 23 February 12
2.5 PANAMAX VESSELS PER AVAILABLE CARGO FOR MARCH DATES - FEARN BULK
Handy
Another depressing week for Supras in both basins. Lack of fresh business and over-supply of tonnage in the Atlantic pushed rates south. Cont ...
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- Africa Commodities Group - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indogreen Group - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Altura Mining Limited, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Therma Luzon, Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Ministry of Mines - Canada
- Manunggal Multi Energi - Indonesia
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- Singapore Mercantile Exchange
- Kalimantan Lumbung Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Simpson Spence & Young - Indonesia
- ASAPP Information Group - India
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Bhatia International Limited - India
- The Treasury - Australian Government
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- Sree Jayajothi Cements Limited - India
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- The University of Queensland
- Antam Resourcindo - Indonesia
- Baramulti Group, Indonesia
- Bharathi Cement Corporation - India
- AsiaOL BioFuels Corp., Philippines
- New Zealand Coal & Carbon
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Tamil Nadu electricity Board
- Bukit Baiduri Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Meralco Power Generation, Philippines
- Australian Coal Association
- Tata Chemicals Ltd - India
- Kideco Jaya Agung - Indonesia
- McConnell Dowell - Australia
- Binh Thuan Hamico - Vietnam
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- Goldman Sachs - Singapore
- Interocean Group of Companies - India
- SMG Consultants - Indonesia
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- The State Trading Corporation of India Ltd
- Petron Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Australian Commodity Traders Exchange
- CNBM International Corporation - China
- Pipit Mutiara Jaya. PT, Indonesia
- Savvy Resources Ltd - HongKong
- Mercator Lines Limited - India
- India Bulls Power Limited - India
- Sakthi Sugars Limited - India
- Bukit Makmur.PT - Indonesia
- Larsen & Toubro Limited - India
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Electricity Generating Authority of Thailand
- Carbofer General Trading SA - India
- Mercuria Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Aboitiz Power Corporation - Philippines
- ICICI Bank Limited - India
- Medco Energi Mining Internasional
- Independent Power Producers Association of India
- Heidelberg Cement - Germany
- PNOC Exploration Corporation - Philippines
- Cement Manufacturers Association - India
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
- Alfred C Toepfer International GmbH - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mjunction Services Limited - India
- Kobexindo Tractors - Indoneisa
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Wilmar Investment Holdings
- San Jose City I Power Corp, Philippines
- Attock Cement Pakistan Limited
- Bhushan Steel Limited - India
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Rio Tinto Coal - Australia
- Commonwealth Bank - Australia
- Uttam Galva Steels Limited - India
- Bangladesh Power Developement Board
- Ind-Barath Power Infra Limited - India
- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- Intertek Mineral Services - Indonesia
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Energy Link Ltd, New Zealand
- Planning Commission, India
- Ambuja Cements Ltd - India
- Siam City Cement - Thailand
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Deloitte Consulting - India
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Java Power - Indonesia
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- Indika Energy - Indonesia
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- London Commodity Brokers - England
- Anglo American - United Kingdom
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Globalindo Alam Lestari - Indonesia
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- Timah Investasi Mineral - Indoneisa
- Romanian Commodities Exchange
- Eastern Energy - Thailand
- Siam City Cement PLC, Thailand
- Minerals Council of Australia
- Thiess Contractors Indonesia
- Agrawal Coal Company - India
- LBH Netherlands Bv - Netherlands
- Global Coal Blending Company Limited - Australia
- Miang Besar Coal Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Indian Oil Corporation Limited
- OPG Power Generation Pvt Ltd - India
- SMC Global Power, Philippines
- Cigading International Bulk Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Jindal Steel & Power Ltd - India
- Latin American Coal - Colombia
- Ministry of Transport, Egypt
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Semirara Mining and Power Corporation, Philippines
- Edison Trading Spa - Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- VISA Power Limited - India
- Coastal Gujarat Power Limited - India
- White Energy Company Limited
- Vedanta Resources Plc - India
- Maharashtra Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Standard Chartered Bank - UAE
- TeaM Sual Corporation - Philippines
- PowerSource Philippines DevCo
- Metalloyd Limited - United Kingdom
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Barasentosa Lestari - Indonesia
- Economic Council, Georgia
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- Bhoruka Overseas - Indonesia
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- Merrill Lynch Commodities Europe
- Malabar Cements Ltd - India
- IEA Clean Coal Centre - UK
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- International Coal Ventures Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Electricity Authority, New Zealand
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