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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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Tuesday, 24 January 12
BUKIT ASAM FY11 NET PROFIT SURGES 50% - INSIDER STORIES
Insider Stories reported that, the state-controlled PT Bukit Asam Tbk (PTBA) estimated to book Rp3 trillion (approximately US$ 335,570,469) net prof ...
Sunday, 22 January 12
FREIGHT MARKET DROPPED TO THE LOWEST LEVEL SINCE 2008
COALspot.com - "The markets continued to soften almost reaching 2008 levels breaking the 1,000 point mark", said Capt. Reddy of Vistaar Sh ...
Saturday, 21 January 12
ASIAS PREMIER COMPREHENSIVE OPEN CUT MINING CONFERENCE SCHEDULED FOR FEBRUARY 2012
As the only such conference in the region for miners and service providers, IBC Asia’s Open Cut Mine Planning & Operational Excellence con ...
Saturday, 21 January 12
COAL MARKETS CELEBRATES A DECADE OF BRINGING BUYERS & SELLERS TOGETHER
In 2012, IBC Asia’s premier Coal Markets conference series – Asia’s only globally focused coal import, export and supply chain eve ...
Saturday, 21 January 12
SAMIN TAN COMPLETES BUMI PLC TAKEOVER - INSIDER STORIES
Insider Stories reported that, Indonesian coking coal miner PT Borneo Lumbung Energi & Metal Tbk (BORN), that is controlled by stellar businessm ...
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- International Coal Ventures Pvt Ltd - India
- Bharathi Cement Corporation - India
- Grasim Industreis Ltd - India
- SMG Consultants - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Agrawal Coal Company - India
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- Madhucon Powers Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Uttam Galva Steels Limited - India
- Sindya Power Generating Company Private Ltd
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Goldman Sachs - Singapore
- Holcim Trading Pte Ltd - Singapore
- Carbofer General Trading SA - India
- Savvy Resources Ltd - HongKong
- Maharashtra Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Deloitte Consulting - India
- Mercator Lines Limited - India
- Ministry of Finance - Indonesia
- Eastern Coal Council - USA
- Georgia Ports Authority, United States
- VISA Power Limited - India
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- Directorate Of Revenue Intelligence - India
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Sinarmas Energy and Mining - Indonesia
- Medco Energi Mining Internasional
- Petron Corporation, Philippines
- Energy Link Ltd, New Zealand
- Marubeni Corporation - India
- Coalindo Energy - Indonesia
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Indogreen Group - Indonesia
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- Antam Resourcindo - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Australian Commodity Traders Exchange
- Minerals Council of Australia
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Electricity Generating Authority of Thailand
- Jorong Barutama Greston.PT - Indonesia
- Parry Sugars Refinery, India
- Renaissance Capital - South Africa
- AsiaOL BioFuels Corp., Philippines
- Billiton Holdings Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Straits Asia Resources Limited - Singapore
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Trasteel International SA, Italy
- Ministry of Transport, Egypt
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- Kideco Jaya Agung - Indonesia
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- GVK Power & Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Jindal Steel & Power Ltd - India
- MS Steel International - UAE
- Singapore Mercantile Exchange
- Aditya Birla Group - India
- Heidelberg Cement - Germany
- ICICI Bank Limited - India
- Manunggal Multi Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- Riau Bara Harum - Indonesia
- Global Coal Blending Company Limited - Australia
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ind-Barath Power Infra Limited - India
- Commonwealth Bank - Australia
- Anglo American - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- PTC India Limited - India
- Australian Coal Association
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Power Finance Corporation Ltd., India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- Vizag Seaport Private Limited - India
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- Energy Development Corp, Philippines
- Bhatia International Limited - India
- India Bulls Power Limited - India
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Chamber of Mines of South Africa
- Banpu Public Company Limited - Thailand
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Orica Australia Pty. Ltd.
- IHS Mccloskey Coal Group - USA
- Mjunction Services Limited - India
- ASAPP Information Group - India
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Eastern Energy - Thailand
- Makarim & Taira - Indonesia
- Coal and Oil Company - UAE
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Orica Mining Services - Indonesia
- White Energy Company Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Bulk Trading Sa - Switzerland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bahari Cakrawala Sebuku - Indonesia
- Thai Mozambique Logistica
- Electricity Authority, New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- Port Waratah Coal Services - Australia
- Aboitiz Power Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Semirara Mining Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Xindia Steels Limited - India
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- Price Waterhouse Coopers - Russia
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Videocon Industries ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Kumho Petrochemical, South Korea
- Bukit Baiduri Energy - Indonesia
- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Ambuja Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- Mintek Dendrill Indonesia
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Salva Resources Pvt Ltd - India
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Siam City Cement - Thailand
- Karbindo Abesyapradhi - Indoneisa
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- Posco Energy - South Korea
- Cement Manufacturers Association - India
- Barasentosa Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- Meralco Power Generation, Philippines
- South Luzon Thermal Energy Corporation
- CNBM International Corporation - China
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Oldendorff Carriers - Singapore
- Kepco SPC Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Tata Chemicals Ltd - India
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