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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, 05 January 12
DRY BULK MARKET TAKES A PLUNGE OF LOW ACTIVITY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
As was widely expected the first days of the new year are characterized by significantly low chartering across the board of the dry bulk market, pus ...
Wednesday, 04 January 12
NEWBUILDING ORDERS PICKED UP IN 2011, BUT 2012 EXPECTED TO BE A DIFFERENT STORY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the BDI (Baltic Dry Index) starting the year on a sour note, losing 114 points and ending yesterday’s session, the first of the new year, ...
Wednesday, 04 January 12
MAHAGENCO TO IMPORT LOW MOISTURE COAL
COALspot.com - Maharashtra State Power Generation Co. Ltd. is the state power generation utility owned by Government of Maharashtra, intends to proc ...
Tuesday, 03 January 12
INDONESIA COAL REFERENCE PRICE FELL AGAIN
COALspot.com - Ministry of Energy and Mineral Resources of Indonesia has sets the January 2012 coal reference price at US$ 109.29 per ton or US$ 3.3 ...
Tuesday, 03 January 12
WHICH WAY WILL THE DRY BULK MARKET HEAD ON FIRST WEEK OF THE YEAR? - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Dry bulk ship owners will be wondering which way will the BDI (Baltic Dry Index), the industry’s benchmark, will head during the first days of ...
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- Standard Chartered Bank - UAE
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- Bangladesh Power Developement Board
- Indo Tambangraya Megah - Indonesia
- Bukit Makmur.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- Oldendorff Carriers - Singapore
- San Jose City I Power Corp, Philippines
- Indika Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Latin American Coal - Colombia
- Grasim Industreis Ltd - India
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Bharathi Cement Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- The State Trading Corporation of India Ltd
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- Leighton Contractors Pty Ltd - Australia
- Bhushan Steel Limited - India
- Sindya Power Generating Company Private Ltd
- Banpu Public Company Limited - Thailand
- Chettinad Cement Corporation Ltd - India
- Mercator Lines Limited - India
- Altura Mining Limited, Indonesia
- Toyota Tsusho Corporation, Japan
- Krishnapatnam Port Company Ltd. - India
- Indogreen Group - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Authority, New Zealand
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
- AsiaOL BioFuels Corp., Philippines
- Xindia Steels Limited - India
- Electricity Generating Authority of Thailand
- Rio Tinto Coal - Australia
- Ministry of Finance - Indonesia
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Indonesian Coal Mining Association
- Videocon Industries ltd - India
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- Intertek Mineral Services - Indonesia
- London Commodity Brokers - England
- Indian Oil Corporation Limited
- Wood Mackenzie - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Kaltim Prima Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Interocean Group of Companies - India
- Ministry of Mines - Canada
- Thai Mozambique Logistica
- Thiess Contractors Indonesia
- Globalindo Alam Lestari - Indonesia
- Ministry of Transport, Egypt
- Sarangani Energy Corporation, Philippines
- Dalmia Cement Bharat India
- Parliament of New Zealand
- ICICI Bank Limited - India
- Bhatia International Limited - India
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Australian Coal Association
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- The University of Queensland
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Sakthi Sugars Limited - India
- Rashtriya Ispat Nigam Limited - India
- Miang Besar Coal Terminal - Indonesia
- Straits Asia Resources Limited - Singapore
- Makarim & Taira - Indonesia
- Port Waratah Coal Services - Australia
- Therma Luzon, Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Star Paper Mills Limited - India
- PowerSource Philippines DevCo
- Bank of Tokyo Mitsubishi UFJ Ltd
- Central Java Power - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Edison Trading Spa - Italy
- Gujarat Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- Timah Investasi Mineral - Indoneisa
- Semirara Mining Corp, Philippines
- Chamber of Mines of South Africa
- Power Finance Corporation Ltd., India
- IHS Mccloskey Coal Group - USA
- Manunggal Multi Energi - Indonesia
- Global Business Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Singapore Mercantile Exchange
- OPG Power Generation Pvt Ltd - India
- Aditya Birla Group - India
- Maheswari Brothers Coal Limited - India
- Posco Energy - South Korea
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Carbofer General Trading SA - India
- Gujarat Mineral Development Corp Ltd - India
- Georgia Ports Authority, United States
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Renaissance Capital - South Africa
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Goldman Sachs - Singapore
- Bukit Baiduri Energy - Indonesia
- Gujarat Sidhee Cement - India
- India Bulls Power Limited - India
- Uttam Galva Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- CNBM International Corporation - China
- Central Electricity Authority - India
- Cigading International Bulk Terminal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Bhoruka Overseas - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Marubeni Corporation - India
- McConnell Dowell - Australia
- Neyveli Lignite Corporation Ltd, - India
- Kalimantan Lumbung Energi - Indonesia
- Iligan Light & Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Maharashtra Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- Anglo American - United Kingdom
- Meralco Power Generation, Philippines
- Agrawal Coal Company - India
- Formosa Plastics Group - Taiwan
- MS Steel International - UAE
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- GAC Shipping (India) Pvt Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Energy Link Ltd, New Zealand
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Merrill Lynch Commodities Europe
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Vedanta Resources Plc - India
- PNOC Exploration Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMC Global Power, Philippines
- Romanian Commodities Exchange
- Billiton Holdings Pty Ltd - Australia
- Mintek Dendrill Indonesia
- Aboitiz Power Corporation - Philippines
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- Asmin Koalindo Tuhup - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Price Waterhouse Coopers - Russia
- Mercuria Energy - Indonesia
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- Lanco Infratech Ltd - India
- PTC India Limited - India
- Cement Manufacturers Association - India
- Orica Mining Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Metalloyd Limited - United Kingdom
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- International Coal Ventures Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Eastern Coal Council - USA
- GVK Power & Infra Limited - India
- Coalindo Energy - Indonesia
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- VISA Power Limited - India
- Heidelberg Cement - Germany
- Vizag Seaport Private Limited - India
- Medco Energi Mining Internasional
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- Parry Sugars Refinery, India
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