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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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Saturday, 11 February 12
WILL HISTORY REPEAT ITSELF IN THIS SHIPPING CYCLE? - CLARKSONS / HELLENIC SHIPPING
A slightly dubious "best man" joke runs as follows… Best man (giving his wedding speech): "Have you noticed how history repeat ...
Friday, 10 February 12
TONNAGE KEEPS ON COMING - DREWRY
Drewry Maritime Research’s latest edition of its Dry Bulk Forecaster pulls no punches in its assessment of a market that looks certain to cont ...
Friday, 10 February 12
GIVE PERMIT POWERS TO GOVERNORS: MINERS - THE JAKARTA POST
The Jakarta Post reported that, following clashes between mining companies and local residents, the Indonesian Mining Association (IMA) wants to tra ...
Thursday, 09 February 12
AUSTRALIA'S EPIC TO ACQUIRE 15,500 HA COAL EXPLORATION LICENCES IN EAST KALIMANTAN, INDONESIA
COALspot.com - Epic Resources Limited to acquire two coal concessions in Kutai Barat regency, East Kalimantan, Indonesia.
According to company's ...
Thursday, 09 February 12
RESOURCE ALAM BUYS 28,521HA CONCESSIONS - INSIDER STORIES
Insider Stories reported that, PT Resource Alam Indonesia Tbk (KKGI), owned by Adijanto family, today announced acquisition of 75% interest in PT Ka ...
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- Larsen & Toubro Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Ind-Barath Power Infra Limited - India
- London Commodity Brokers - England
- Parliament of New Zealand
- Holcim Trading Pte Ltd - Singapore
- IHS Mccloskey Coal Group - USA
- Mjunction Services Limited - India
- Bukit Baiduri Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Orica Mining Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- PetroVietnam Power Coal Import and Supply Company
- Commonwealth Bank - Australia
- Economic Council, Georgia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Finance - Indonesia
- Videocon Industries ltd - India
- Deloitte Consulting - India
- ICICI Bank Limited - India
- Global Coal Blending Company Limited - Australia
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Heidelberg Cement - Germany
- LBH Netherlands Bv - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tata Chemicals Ltd - India
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Africa Commodities Group - South Africa
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kartika Selabumi Mining - Indonesia
- Indogreen Group - Indonesia
- Carbofer General Trading SA - India
- Directorate General of MIneral and Coal - Indonesia
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Coal and Oil Company - UAE
- Thai Mozambique Logistica
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- Latin American Coal - Colombia
- Karaikal Port Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Antam Resourcindo - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- GMR Energy Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Bayan Resources Tbk. - Indonesia
- Medco Energi Mining Internasional
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- Orica Australia Pty. Ltd.
- Agrawal Coal Company - India
- Ministry of Mines - Canada
- The State Trading Corporation of India Ltd
- Siam City Cement PLC, Thailand
- Wilmar Investment Holdings
- GAC Shipping (India) Pvt Ltd
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- TeaM Sual Corporation - Philippines
- Rio Tinto Coal - Australia
- Oldendorff Carriers - Singapore
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Eastern Energy - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Interocean Group of Companies - India
- TNB Fuel Sdn Bhd - Malaysia
- Price Waterhouse Coopers - Russia
- Neyveli Lignite Corporation Ltd, - India
- Standard Chartered Bank - UAE
- Kohat Cement Company Ltd. - Pakistan
- Mercuria Energy - Indonesia
- Chamber of Mines of South Africa
- Uttam Galva Steels Limited - India
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- Makarim & Taira - Indonesia
- Formosa Plastics Group - Taiwan
- Grasim Industreis Ltd - India
- Sree Jayajothi Cements Limited - India
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- Bhoruka Overseas - Indonesia
- Independent Power Producers Association of India
- Baramulti Group, Indonesia
- Indian Oil Corporation Limited
- Mercator Lines Limited - India
- Kideco Jaya Agung - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- Bhushan Steel Limited - India
- Rashtriya Ispat Nigam Limited - India
- Bangladesh Power Developement Board
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Essar Steel Hazira Ltd - India
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Coastal Gujarat Power Limited - India
- Bukit Makmur.PT - Indonesia
- Energy Link Ltd, New Zealand
- Siam City Cement - Thailand
- Kaltim Prima Coal - Indonesia
- Electricity Authority, New Zealand
- SMC Global Power, Philippines
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Intertek Mineral Services - Indonesia
- PTC India Limited - India
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Energy Exchange, India
- Jindal Steel & Power Ltd - India
- ASAPP Information Group - India
- Riau Bara Harum - Indonesia
- Bharathi Cement Corporation - India
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- Merrill Lynch Commodities Europe
- Attock Cement Pakistan Limited
- White Energy Company Limited
- AsiaOL BioFuels Corp., Philippines
- Australian Commodity Traders Exchange
- The Treasury - Australian Government
- Sojitz Corporation - Japan
- SMG Consultants - Indonesia
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Trasteel International SA, Italy
- Kumho Petrochemical, South Korea
- European Bulk Services B.V. - Netherlands
- Eastern Coal Council - USA
- Aditya Birla Group - India
- Jaiprakash Power Ventures ltd
- Minerals Council of Australia
- Samtan Co., Ltd - South Korea
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- Global Business Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Banpu Public Company Limited - Thailand
- Planning Commission, India
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Coalindo Energy - Indonesia
- Meralco Power Generation, Philippines
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- Vedanta Resources Plc - India
- Georgia Ports Authority, United States
- San Jose City I Power Corp, Philippines
- Binh Thuan Hamico - Vietnam
- GVK Power & Infra Limited - India
- Bhatia International Limited - India
- Sindya Power Generating Company Private Ltd
- Maharashtra Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- Xindia Steels Limited - India
- Gujarat Sidhee Cement - India
- Wood Mackenzie - Singapore
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- McConnell Dowell - Australia
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- Marubeni Corporation - India
- Lanco Infratech Ltd - India
- India Bulls Power Limited - India
- Romanian Commodities Exchange
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Globalindo Alam Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
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