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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, 22 February 12
RAW COMMODITY EXPORT BAN SPARKS SMELTER BUILDING BOOM IN INDONESIA ANTARA / THE JAKARTA GLOBE
Antara / The Jakarta Globe reported that, as the government gears up to ban all exports of unprocessed commodities, Indonesia will see 12 new ...
Tuesday, 21 February 12
THREAT ISSUED ON MINERAL FIRMS AS GOVT PLANS EXPORT BAN - THE JAKARTA POST
The Jakarta Post, one of the leading english news papaer in Indonesia reported that, the government has given mineral producers three months to subm ...
Monday, 20 February 12
WEEKLY DRY MARKET OVERVIEW - MARIA BERTZELETOU
The dry market experienced one more disappointing week with tonnage oversupply and limited cargo demand that pushes earnings for shipping players to ...
Monday, 20 February 12
JATENERGY SECURES FIRST 8000-TONNE COAL SALES CONTRACT FOR JONGKANG MINES
8000-tonne contract with Singaporean buyer signed for March delivery
50% down payment due in five working days
Production continues at both Jongka ...
Monday, 20 February 12
DIAN SWASTATIKA ACQUIRES ANDALAN LESTARI - INSIDER STORIES
Insider Stories reported that, PT Dian Swastatika Sentosa Tbk (DSSA), controlled by Fuganto Widjaja, son of Indra Widjaja, reported a 99.83% takeove ...
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- Bahari Cakrawala Sebuku - Indonesia
- Kartika Selabumi Mining - Indonesia
- Goldman Sachs - Singapore
- PTC India Limited - India
- Uttam Galva Steels Limited - India
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Star Paper Mills Limited - India
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- Metalloyd Limited - United Kingdom
- IHS Mccloskey Coal Group - USA
- Semirara Mining and Power Corporation, Philippines
- Coal and Oil Company - UAE
- Parry Sugars Refinery, India
- Bulk Trading Sa - Switzerland
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Oldendorff Carriers - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- Meenaskhi Energy Private Limited - India
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CIMB Investment Bank - Malaysia
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Port Waratah Coal Services - Australia
- Kaltim Prima Coal - Indonesia
- Tata Chemicals Ltd - India
- Pendopo Energi Batubara - Indonesia
- Sakthi Sugars Limited - India
- Semirara Mining Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Mjunction Services Limited - India
- Energy Development Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Electricity Generating Authority of Thailand
- European Bulk Services B.V. - Netherlands
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bayan Resources Tbk. - Indonesia
- PowerSource Philippines DevCo
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Latin American Coal - Colombia
- White Energy Company Limited
- Indonesian Coal Mining Association
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Bhushan Steel Limited - India
- Heidelberg Cement - Germany
- Carbofer General Trading SA - India
- Rio Tinto Coal - Australia
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Global Coal Blending Company Limited - Australia
- Siam City Cement PLC, Thailand
- AsiaOL BioFuels Corp., Philippines
- Therma Luzon, Inc, Philippines
- LBH Netherlands Bv - Netherlands
- New Zealand Coal & Carbon
- Romanian Commodities Exchange
- Kumho Petrochemical, South Korea
- Essar Steel Hazira Ltd - India
- IEA Clean Coal Centre - UK
- Trasteel International SA, Italy
- Energy Link Ltd, New Zealand
- Banpu Public Company Limited - Thailand
- Indogreen Group - Indonesia
- Kideco Jaya Agung - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Independent Power Producers Association of India
- Anglo American - United Kingdom
- Jaiprakash Power Ventures ltd
- Riau Bara Harum - Indonesia
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- Borneo Indobara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- Central Java Power - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- GAC Shipping (India) Pvt Ltd
- SMG Consultants - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- South Luzon Thermal Energy Corporation
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- Xindia Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Malabar Cements Ltd - India
- Altura Mining Limited, Indonesia
- Jindal Steel & Power Ltd - India
- Directorate Of Revenue Intelligence - India
- Intertek Mineral Services - Indonesia
- Global Business Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- ICICI Bank Limited - India
- Cement Manufacturers Association - India
- Commonwealth Bank - Australia
- MS Steel International - UAE
- ASAPP Information Group - India
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Straits Asia Resources Limited - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sinarmas Energy and Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Vizag Seaport Private Limited - India
- Savvy Resources Ltd - HongKong
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Sarangani Energy Corporation, Philippines
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Mining Services - Indonesia
- Georgia Ports Authority, United States
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- Indian Oil Corporation Limited
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Asmin Koalindo Tuhup - Indonesia
- Antam Resourcindo - Indonesia
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Economic Council, Georgia
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indo Tambangraya Megah - Indonesia
- Planning Commission, India
- Neyveli Lignite Corporation Ltd, - India
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- SMC Global Power, Philippines
- Central Electricity Authority - India
- Power Finance Corporation Ltd., India
- Minerals Council of Australia
- Ceylon Electricity Board - Sri Lanka
- Binh Thuan Hamico - Vietnam
- Kobexindo Tractors - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Wood Mackenzie - Singapore
- Global Green Power PLC Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Videocon Industries ltd - India
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Karaikal Port Pvt Ltd - India
- The University of Queensland
- Bharathi Cement Corporation - India
- Manunggal Multi Energi - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- Orica Australia Pty. Ltd.
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