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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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Friday, 27 January 12
DEMOLITION ACTIVITY NEEDS TO INCREASE SIGNIFICANTLY THIS YEAR AS WELL - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The oversupply of vessels in most shipping sectors is so intense that it’s become clear to ship owners that unless they scrap as many of their ...
Thursday, 26 January 12
ABM INVESTAMA SEALS US$100 MIO CONTRACT - INSIDER STORIES
Insider Stories reported that, PT Reswara Minergi Hartama, a subsidary of PT ABM Investama Tbk (ABMM), has sealed a 2 million tons of coal export co ...
Thursday, 26 January 12
DRY BULK MARKETS DOWNFALL KNOWS NO LIMITS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market’s demise seems to have no visible end, as China’s Lunar Year Holidays continue this week, thus leaving demand with n ...
Wednesday, 25 January 12
CLEAN AND CLEAR MINING PERMITS TO BE COMPLETED END OF 2012 - BISNIS.COM
Bisnis.com reported that, the government plans to announce 700 mining permits with "clean and clear" status without overlapping on other p ...
Tuesday, 24 January 12
ANOTHER SEVERE DROP IN THE CAPESIZE - BRS
The lunar year celebrations and the high number of new building deliveries (more than 35 Capes so far in January as owners push 2011 deliveries into ...
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- Independent Power Producers Association of India
- CIMB Investment Bank - Malaysia
- Kartika Selabumi Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Australian Coal Association
- The Treasury - Australian Government
- Antam Resourcindo - Indonesia
- Bhushan Steel Limited - India
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- Ceylon Electricity Board - Sri Lanka
- Singapore Mercantile Exchange
- GVK Power & Infra Limited - India
- Sojitz Corporation - Japan
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- European Bulk Services B.V. - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate Of Revenue Intelligence - India
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Wood Mackenzie - Singapore
- The State Trading Corporation of India Ltd
- Chamber of Mines of South Africa
- Economic Council, Georgia
- GN Power Mariveles Coal Plant, Philippines
- Coal and Oil Company - UAE
- LBH Netherlands Bv - Netherlands
- Sinarmas Energy and Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- San Jose City I Power Corp, Philippines
- Orica Mining Services - Indonesia
- Romanian Commodities Exchange
- Kobexindo Tractors - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- Merrill Lynch Commodities Europe
- Meralco Power Generation, Philippines
- Grasim Industreis Ltd - India
- Attock Cement Pakistan Limited
- Eastern Coal Council - USA
- Tamil Nadu electricity Board
- Alfred C Toepfer International GmbH - Germany
- Gujarat Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- Global Green Power PLC Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Authority, New Zealand
- Xindia Steels Limited - India
- Sakthi Sugars Limited - India
- White Energy Company Limited
- Videocon Industries ltd - India
- Oldendorff Carriers - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- GMR Energy Limited - India
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Goldman Sachs - Singapore
- Globalindo Alam Lestari - Indonesia
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- Bukit Asam (Persero) Tbk - Indonesia
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMG Consultants - Indonesia
- Toyota Tsusho Corporation, Japan
- Cement Manufacturers Association - India
- PetroVietnam Power Coal Import and Supply Company
- Timah Investasi Mineral - Indoneisa
- Madhucon Powers Ltd - India
- PTC India Limited - India
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Indian Energy Exchange, India
- Semirara Mining and Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Standard Chartered Bank - UAE
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Georgia Ports Authority, United States
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- Central Electricity Authority - India
- Jorong Barutama Greston.PT - Indonesia
- Samtan Co., Ltd - South Korea
- International Coal Ventures Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Savvy Resources Ltd - HongKong
- Bharathi Cement Corporation - India
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Heidelberg Cement - Germany
- Kepco SPC Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Riau Bara Harum - Indonesia
- Vedanta Resources Plc - India
- PowerSource Philippines DevCo
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
- Mercator Lines Limited - India
- Trasteel International SA, Italy
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Kaltim Prima Coal - Indonesia
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Coastal Gujarat Power Limited - India
- Ministry of Finance - Indonesia
- Lanco Infratech Ltd - India
- Larsen & Toubro Limited - India
- South Luzon Thermal Energy Corporation
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- ICICI Bank Limited - India
- Edison Trading Spa - Italy
- Parliament of New Zealand
- Coalindo Energy - Indonesia
- Sical Logistics Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Energy Development Corp, Philippines
- Africa Commodities Group - South Africa
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Anglo American - United Kingdom
- The University of Queensland
- India Bulls Power Limited - India
- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- Thiess Contractors Indonesia
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- Star Paper Mills Limited - India
- Carbofer General Trading SA - India
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- Global Coal Blending Company Limited - Australia
- Ministry of Mines - Canada
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Commonwealth Bank - Australia
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Simpson Spence & Young - Indonesia
- Bhoruka Overseas - Indonesia
- OPG Power Generation Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Electricity Generating Authority of Thailand
- Makarim & Taira - Indonesia
- Manunggal Multi Energi - Indonesia
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Intertek Mineral Services - Indonesia
- Chettinad Cement Corporation Ltd - India
- Therma Luzon, Inc, Philippines
- Planning Commission, India
- Vizag Seaport Private Limited - India
- Indian Oil Corporation Limited
- New Zealand Coal & Carbon
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- Altura Mining Limited, Indonesia
- Medco Energi Mining Internasional
- London Commodity Brokers - England
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- Malabar Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
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