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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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Thursday, 19 January 12
SOUTHGOBI RESOURCES SELLS MORE THAN FOUR MILLION TONNES OF COAL IN 2011, 58% MORE THAN 2010
COALspot.com - SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) has successfully complets year 2011 on guidance in terms of coal sales and production.
...
Thursday, 19 January 12
14TH VOGP MEETING IN HO CHI MINH CITY HANDS OUT LATEST UPDATES AND DEVELOPMENTS IN VIETNAM'S ENERGY INDUSTRY
Press Release: At upcoming 14th Vietnam Oil Gas Power on 27-28 Feb in Ho Chi Minh City the industry’s most influential names including Petrovi ...
Thursday, 19 January 12
DELTA DUNIA SEALS US$820 MIO CONTRACT INSIDER STORIES
Insider Stories reported that, PT Delta Dunia Makmur Tbk (DOID) has announced that its primary operating subsidiary, PT Bukit Makmur Mandiri Utama ( ...
Wednesday, 18 January 12
WARM WINTER ACROSS EUROPE HAS IMPACTED NEGATIVELY COAL DEMAND - BRS
With the Chinese New Year just a week away, all markets are slowing down. The drop in freight rates for all sizes has been significant over the past ...
Wednesday, 18 January 12
DRY BULK MARKET'S DRAMA CONTINUES IN START OF NEW WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A flurry of newbuilding deliveries, coupled with a slow start to the new year, a typical trend for the dry bulk market, has led the industry's benc ...
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- Gujarat Mineral Development Corp Ltd - India
- Coal and Oil Company - UAE
- Banpu Public Company Limited - Thailand
- Eastern Energy - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- Latin American Coal - Colombia
- SMG Consultants - Indonesia
- Globalindo Alam Lestari - Indonesia
- Jindal Steel & Power Ltd - India
- VISA Power Limited - India
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Wilmar Investment Holdings
- Bukit Makmur.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Intertek Mineral Services - Indonesia
- Agrawal Coal Company - India
- Samtan Co., Ltd - South Korea
- Leighton Contractors Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- Electricity Authority, New Zealand
- White Energy Company Limited
- Malabar Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- CNBM International Corporation - China
- Kaltim Prima Coal - Indonesia
- Rio Tinto Coal - Australia
- ICICI Bank Limited - India
- Global Coal Blending Company Limited - Australia
- Vizag Seaport Private Limited - India
- OPG Power Generation Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Lanco Infratech Ltd - India
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Bukit Asam (Persero) Tbk - Indonesia
- Sical Logistics Limited - India
- Semirara Mining and Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Vedanta Resources Plc - India
- Mintek Dendrill Indonesia
- Bangladesh Power Developement Board
- Star Paper Mills Limited - India
- Barasentosa Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Petron Corporation, Philippines
- Singapore Mercantile Exchange
- Posco Energy - South Korea
- ASAPP Information Group - India
- Romanian Commodities Exchange
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- Energy Link Ltd, New Zealand
- Manunggal Multi Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Baramulti Group, Indonesia
- Essar Steel Hazira Ltd - India
- Chamber of Mines of South Africa
- Ministry of Transport, Egypt
- Meralco Power Generation, Philippines
- Videocon Industries ltd - India
- Medco Energi Mining Internasional
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
- Grasim Industreis Ltd - India
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Planning Commission, India
- Orica Mining Services - Indonesia
- Altura Mining Limited, Indonesia
- Central Java Power - Indonesia
- New Zealand Coal & Carbon
- MS Steel International - UAE
- Anglo American - United Kingdom
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Orica Australia Pty. Ltd.
- The Treasury - Australian Government
- The University of Queensland
- India Bulls Power Limited - India
- Maheswari Brothers Coal Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Merrill Lynch Commodities Europe
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Port Waratah Coal Services - Australia
- PetroVietnam Power Coal Import and Supply Company
- Borneo Indobara - Indonesia
- Makarim & Taira - Indonesia
- Parry Sugars Refinery, India
- Economic Council, Georgia
- Mercuria Energy - Indonesia
- SMC Global Power, Philippines
- Xindia Steels Limited - India
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- Jorong Barutama Greston.PT - Indonesia
- Heidelberg Cement - Germany
- Renaissance Capital - South Africa
- Bharathi Cement Corporation - India
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- CIMB Investment Bank - Malaysia
- Independent Power Producers Association of India
- Bahari Cakrawala Sebuku - Indonesia
- Interocean Group of Companies - India
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Wood Mackenzie - Singapore
- Coastal Gujarat Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Cement Manufacturers Association - India
- Australian Coal Association
- Australian Commodity Traders Exchange
- Bulk Trading Sa - Switzerland
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Power Finance Corporation Ltd., India
- Larsen & Toubro Limited - India
- IEA Clean Coal Centre - UK
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Standard Chartered Bank - UAE
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- Mercator Lines Limited - India
- GVK Power & Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- Iligan Light & Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- AsiaOL BioFuels Corp., Philippines
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- The State Trading Corporation of India Ltd
- Coalindo Energy - Indonesia
- Oldendorff Carriers - Singapore
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
- Global Green Power PLC Corporation, Philippines
- GMR Energy Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Trasteel International SA, Italy
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- South Luzon Thermal Energy Corporation
- Salva Resources Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- Ambuja Cements Ltd - India
- Electricity Generating Authority of Thailand
- Sarangani Energy Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- McConnell Dowell - Australia
- Kohat Cement Company Ltd. - Pakistan
- Carbofer General Trading SA - India
- Petrochimia International Co. Ltd.- Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate Of Revenue Intelligence - India
- Goldman Sachs - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Edison Trading Spa - Italy
- Marubeni Corporation - India
- PTC India Limited - India
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
- Toyota Tsusho Corporation, Japan
- Siam City Cement - Thailand
- Parliament of New Zealand
- Kapuas Tunggal Persada - Indonesia
- Sindya Power Generating Company Private Ltd
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