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