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