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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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Sunday, 08 January 12
THARPAK CONSORTIUM FORMED TO DEVELOP MEGA ENERGY COMPLEX IN SINDH PROVINCE, PAKISTAN
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CLARIDEN GLOBAL BRINGS YOU INDONESIA MINING 2012
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Friday, 06 January 12
THE PANAMAX MARKET EXPERIENCED A SLOW START TO 2012 - FEARNLEYS AS
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- Petron Corporation, Philippines
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- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- Ambuja Cements Ltd - India
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- Commonwealth Bank - Australia
- Bulk Trading Sa - Switzerland
- ICICI Bank Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Coastal Gujarat Power Limited - India
- Directorate Of Revenue Intelligence - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
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- Kartika Selabumi Mining - Indonesia
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- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- Trasteel International SA, Italy
- Banpu Public Company Limited - Thailand
- Kepco SPC Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
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- The State Trading Corporation of India Ltd
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- Tata Chemicals Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Australian Commodity Traders Exchange
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- Indian Oil Corporation Limited
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- The Treasury - Australian Government
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- Globalindo Alam Lestari - Indonesia
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- Global Business Power Corporation, Philippines
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- Pendopo Energi Batubara - Indonesia
- Bukit Makmur.PT - Indonesia
- Bhoruka Overseas - Indonesia
- OPG Power Generation Pvt Ltd - India
- Bhatia International Limited - India
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- Latin American Coal - Colombia
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- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
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- Savvy Resources Ltd - HongKong
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
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- Intertek Mineral Services - Indonesia
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- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thiess Contractors Indonesia
- Maheswari Brothers Coal Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- New Zealand Coal & Carbon
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- Sojitz Corporation - Japan
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- Billiton Holdings Pty Ltd - Australia
- Parry Sugars Refinery, India
- Sakthi Sugars Limited - India
- Marubeni Corporation - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- White Energy Company Limited
- LBH Netherlands Bv - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- Karaikal Port Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Baramulti Group, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- GAC Shipping (India) Pvt Ltd
- Madhucon Powers Ltd - India
- London Commodity Brokers - England
- Xindia Steels Limited - India
- Singapore Mercantile Exchange
- Economic Council, Georgia
- Neyveli Lignite Corporation Ltd, - India
- Central Java Power - Indonesia
- Parliament of New Zealand
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- The University of Queensland
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- Timah Investasi Mineral - Indoneisa
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- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- MS Steel International - UAE
- Kideco Jaya Agung - Indonesia
- Eastern Energy - Thailand
- PNOC Exploration Corporation - Philippines
- Heidelberg Cement - Germany
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- Sinarmas Energy and Mining - Indonesia
- Videocon Industries ltd - India
- Thai Mozambique Logistica
- GN Power Mariveles Coal Plant, Philippines
- Sical Logistics Limited - India
- SMG Consultants - Indonesia
- GVK Power & Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Malabar Cements Ltd - India
- Minerals Council of Australia
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- Kobexindo Tractors - Indoneisa
- Anglo American - United Kingdom
- CNBM International Corporation - China
- India Bulls Power Limited - India
- SN Aboitiz Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Africa Commodities Group - South Africa
- Electricity Authority, New Zealand
- Star Paper Mills Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Kalimantan Lumbung Energi - Indonesia
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- Wilmar Investment Holdings
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- CIMB Investment Bank - Malaysia
- Ministry of Transport, Egypt
- Indonesian Coal Mining Association
- Jorong Barutama Greston.PT - Indonesia
- Chamber of Mines of South Africa
- Agrawal Coal Company - India
- Indogreen Group - Indonesia
- Coalindo Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Posco Energy - South Korea
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- Medco Energi Mining Internasional
- Formosa Plastics Group - Taiwan
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Indika Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Antam Resourcindo - Indonesia
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
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- Coal and Oil Company - UAE
- IEA Clean Coal Centre - UK
- Planning Commission, India
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- Makarim & Taira - Indonesia
- Deloitte Consulting - India
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