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