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