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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, 01 February 12
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Monday, 30 January 12
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Saturday, 28 January 12
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- Goldman Sachs - Singapore
- Sakthi Sugars Limited - India
- Barasentosa Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bangladesh Power Developement Board
- Central Electricity Authority - India
- Sical Logistics Limited - India
- Star Paper Mills Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- GMR Energy Limited - India
- IEA Clean Coal Centre - UK
- Mercuria Energy - Indonesia
- Borneo Indobara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Oil Corporation Limited
- Gujarat Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Cement Manufacturers Association - India
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Carbofer General Trading SA - India
- Minerals Council of Australia
- Bhatia International Limited - India
- Tata Chemicals Ltd - India
- Malabar Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- CNBM International Corporation - China
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coalindo Energy - Indonesia
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining Corp, Philippines
- Indika Energy - Indonesia
- Kumho Petrochemical, South Korea
- European Bulk Services B.V. - Netherlands
- Intertek Mineral Services - Indonesia
- Rio Tinto Coal - Australia
- Electricity Generating Authority of Thailand
- Jaiprakash Power Ventures ltd
- The State Trading Corporation of India Ltd
- SMC Global Power, Philippines
- Ministry of Finance - Indonesia
- Indogreen Group - Indonesia
- Siam City Cement PLC, Thailand
- Medco Energi Mining Internasional
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- White Energy Company Limited
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indonesian Coal Mining Association
- London Commodity Brokers - England
- Mjunction Services Limited - India
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- Meenaskhi Energy Private Limited - India
- ASAPP Information Group - India
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Tamil Nadu electricity Board
- Renaissance Capital - South Africa
- Coastal Gujarat Power Limited - India
- Mercator Lines Limited - India
- Leighton Contractors Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- Vizag Seaport Private Limited - India
- Deloitte Consulting - India
- Makarim & Taira - Indonesia
- Anglo American - United Kingdom
- Independent Power Producers Association of India
- Aditya Birla Group - India
- Coal and Oil Company - UAE
- PetroVietnam Power Coal Import and Supply Company
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Bhushan Steel Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Iligan Light & Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Riau Bara Harum - Indonesia
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Savvy Resources Ltd - HongKong
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Planning Commission, India
- Mintek Dendrill Indonesia
- Orica Australia Pty. Ltd.
- Straits Asia Resources Limited - Singapore
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Vijayanagar Sugar Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Madhucon Powers Ltd - India
- Salva Resources Pvt Ltd - India
- Larsen & Toubro Limited - India
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Port Waratah Coal Services - Australia
- The University of Queensland
- Bulk Trading Sa - Switzerland
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Formosa Plastics Group - Taiwan
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petrochimia International Co. Ltd.- Taiwan
- Heidelberg Cement - Germany
- Videocon Industries ltd - India
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- Eastern Energy - Thailand
- Samtan Co., Ltd - South Korea
- Kapuas Tunggal Persada - Indonesia
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Meralco Power Generation, Philippines
- Altura Mining Limited, Indonesia
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- Sindya Power Generating Company Private Ltd
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Central Java Power - Indonesia
- Metalloyd Limited - United Kingdom
- The Treasury - Australian Government
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Uttam Galva Steels Limited - India
- Global Business Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- Directorate Of Revenue Intelligence - India
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Edison Trading Spa - Italy
- Kartika Selabumi Mining - Indonesia
- LBH Netherlands Bv - Netherlands
- Energy Development Corp, Philippines
- GAC Shipping (India) Pvt Ltd
- ICICI Bank Limited - India
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Kobexindo Tractors - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Georgia Ports Authority, United States
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Sojitz Corporation - Japan
- Kaltim Prima Coal - Indonesia
- Commonwealth Bank - Australia
- Marubeni Corporation - India
- Africa Commodities Group - South Africa
- Globalindo Alam Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- Krishnapatnam Port Company Ltd. - India
- MS Steel International - UAE
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- Ambuja Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- San Jose City I Power Corp, Philippines
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