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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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Monday, 16 January 12
BUMA MINED 2.7 MILLION TONS COAL LAST MONTH
COALspot.com - BUMA has mined 2.7 million tons (-14.1% YoY) coal last month and removed 25.8 million bcm (-5.6% YoY) overburden, according to compan ...
Sunday, 15 January 12
THE FREIGHT MARKET CONTINUED TO BLEED - VISTAAR
COALspot.com - "The markets continued to bleed with BDI touching almost 1000 points , almost reaching the collapse of 2008 levels," said C ...
Saturday, 14 January 12
GOLDEN MINES TO SUPPLY 4 MIO TONS - INSIDER STORIES
Insider Stories reported that, Coal miner under Sinarmas Group PT Golden Energy Mines Tbk (GEMS), a subsidiary of PT Dian Swastatika Sentosa Tbk (DS ...
Friday, 13 January 12
DIFFICULT START OF 2012 FOR DRY BULK MARKET SEEN HARD TO CHANGE IN THE COURSE OF THE YEAR, UNLESS DEMOLITION PICKS UP
The dry bulk market has been on a freefall this week after a rocky start to the new year. Yesterday, the BDI (Baltic Dry Index) the industry's benc ...
Thursday, 12 January 12
DRY BULK MARKET CRASHING AT START OF THE YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept being on freefall mode yesterday, with the industry's benchmark, the BDI (Baltic Dry Index) losing a massive 5.17% on ...
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- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- Miang Besar Coal Terminal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Economic Council, Georgia
- McConnell Dowell - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- SN Aboitiz Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- Antam Resourcindo - Indonesia
- Bhushan Steel Limited - India
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Barasentosa Lestari - Indonesia
- Romanian Commodities Exchange
- Indian Oil Corporation Limited
- Indian Energy Exchange, India
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Transport, Egypt
- Standard Chartered Bank - UAE
- Billiton Holdings Pty Ltd - Australia
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- CNBM International Corporation - China
- PetroVietnam Power Coal Import and Supply Company
- Tata Chemicals Ltd - India
- Parry Sugars Refinery, India
- India Bulls Power Limited - India
- Siam City Cement - Thailand
- Holcim Trading Pte Ltd - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Uttam Galva Steels Limited - India
- MS Steel International - UAE
- Sree Jayajothi Cements Limited - India
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Dalmia Cement Bharat India
- Energy Development Corp, Philippines
- Mercuria Energy - Indonesia
- Chamber of Mines of South Africa
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- ASAPP Information Group - India
- GMR Energy Limited - India
- Deloitte Consulting - India
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Global Business Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Bukit Baiduri Energy - Indonesia
- Vizag Seaport Private Limited - India
- Bharathi Cement Corporation - India
- Star Paper Mills Limited - India
- Essar Steel Hazira Ltd - India
- Samtan Co., Ltd - South Korea
- Aditya Birla Group - India
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Gujarat Sidhee Cement - India
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Leighton Contractors Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IHS Mccloskey Coal Group - USA
- Rashtriya Ispat Nigam Limited - India
- SMC Global Power, Philippines
- Electricity Authority, New Zealand
- Australian Commodity Traders Exchange
- San Jose City I Power Corp, Philippines
- Bangladesh Power Developement Board
- Commonwealth Bank - Australia
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- London Commodity Brokers - England
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Mercator Lines Limited - India
- Coastal Gujarat Power Limited - India
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Planning Commission, India
- Maharashtra Electricity Regulatory Commission - India
- Kartika Selabumi Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- Cement Manufacturers Association - India
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Meralco Power Generation, Philippines
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Sakthi Sugars Limited - India
- Semirara Mining Corp, Philippines
- Carbofer General Trading SA - India
- Larsen & Toubro Limited - India
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Riau Bara Harum - Indonesia
- PTC India Limited - India
- Altura Mining Limited, Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Formosa Plastics Group - Taiwan
- Power Finance Corporation Ltd., India
- Ambuja Cements Ltd - India
- Makarim & Taira - Indonesia
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- Central Java Power - Indonesia
- Anglo American - United Kingdom
- Banpu Public Company Limited - Thailand
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- TeaM Sual Corporation - Philippines
- Petron Corporation, Philippines
- Malabar Cements Ltd - India
- The University of Queensland
- Meenaskhi Energy Private Limited - India
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- Sical Logistics Limited - India
- Interocean Group of Companies - India
- Coal and Oil Company - UAE
- AsiaOL BioFuels Corp., Philippines
- The Treasury - Australian Government
- Alfred C Toepfer International GmbH - Germany
- Mintek Dendrill Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Ministry of Finance - Indonesia
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- Wilmar Investment Holdings
- Mjunction Services Limited - India
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- Binh Thuan Hamico - Vietnam
- South Luzon Thermal Energy Corporation
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- LBH Netherlands Bv - Netherlands
- Bhoruka Overseas - Indonesia
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Simpson Spence & Young - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- GVK Power & Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Intertek Mineral Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Ind-Barath Power Infra Limited - India
- Heidelberg Cement - Germany
- Renaissance Capital - South Africa
- Indo Tambangraya Megah - Indonesia
- Ministry of Mines - Canada
- Bank of Tokyo Mitsubishi UFJ Ltd
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Xindia Steels Limited - India
- Posco Energy - South Korea
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- Global Coal Blending Company Limited - Australia
- Minerals Council of Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thiess Contractors Indonesia
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Kobexindo Tractors - Indoneisa
- Bhatia International Limited - India
- ICICI Bank Limited - India
- Lanco Infratech Ltd - India
- Merrill Lynch Commodities Europe
- Sinarmas Energy and Mining - Indonesia
- Georgia Ports Authority, United States
- Independent Power Producers Association of India
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