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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, 02 January 12
THE PROMISE OF INDIA: A BRIEF INTERRUPTION? - CLARKSONS / HELLENIC SHIPPING
Future growth in Indian seaborne coal imports has sometimes been considered as one of the largest potential upsides in the currently oversupplied dr ...
Sunday, 01 January 12
IS INDIA FOLLOWING INDONESIA TO STANDARDIZE COAL PRICES TO GET MAXIMUM BENEFITS?
COALspot.com - Coal India limited, an Indian state owned and world largest coal producer has introduced gross calorific value (GCV) based pricing me ...
Saturday, 31 December 11
GLOBALCOAL NEWC INDEX SURGED 2.32 PERCENT
COALspot.com - globalCOAL index in Newcastle Port, benchmark for Asian market, ended substantially higher, surged 2.32 percent to US$115.47 per ...
Saturday, 31 December 11
BORNEO LUMBUNG TO BUY BUMI STAKE, SWAP CEO - THE JAKARTA GLOBE
The Jakarta Globe, one of the leading english news paper in Indonesia reported yesterday, shareholders of Indonesian coking coal miner Borneo Lumbun ...
Friday, 30 December 11
CENTRAL GOVERNMENT SHOULD ISSUE PERMITS - THE JAKARTA POST
The Jakarta Post reported that, business associations from both the palm oil and mining sectors have suggested that the central government should re ...
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- Edison Trading Spa - Italy
- Chamber of Mines of South Africa
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Jaiprakash Power Ventures ltd
- Medco Energi Mining Internasional
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Oldendorff Carriers - Singapore
- Samtan Co., Ltd - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Anglo American - United Kingdom
- Semirara Mining Corp, Philippines
- Commonwealth Bank - Australia
- Uttam Galva Steels Limited - India
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- Kepco SPC Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Price Waterhouse Coopers - Russia
- Aboitiz Power Corporation - Philippines
- GVK Power & Infra Limited - India
- New Zealand Coal & Carbon
- International Coal Ventures Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Manunggal Multi Energi - Indonesia
- IEA Clean Coal Centre - UK
- Kobexindo Tractors - Indoneisa
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- PowerSource Philippines DevCo
- Electricity Authority, New Zealand
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Posco Energy - South Korea
- Iligan Light & Power Inc, Philippines
- White Energy Company Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
- Sree Jayajothi Cements Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Antam Resourcindo - Indonesia
- Salva Resources Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Sojitz Corporation - Japan
- Romanian Commodities Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Directorate Of Revenue Intelligence - India
- Singapore Mercantile Exchange
- Energy Development Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- Tamil Nadu electricity Board
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- Power Finance Corporation Ltd., India
- Minerals Council of Australia
- Simpson Spence & Young - Indonesia
- Georgia Ports Authority, United States
- Intertek Mineral Services - Indonesia
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- Parliament of New Zealand
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- India Bulls Power Limited - India
- Sical Logistics Limited - India
- Rashtriya Ispat Nigam Limited - India
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Standard Chartered Bank - UAE
- Leighton Contractors Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Dalmia Cement Bharat India
- Meenaskhi Energy Private Limited - India
- Formosa Plastics Group - Taiwan
- Indonesian Coal Mining Association
- Pendopo Energi Batubara - Indonesia
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- The University of Queensland
- Krishnapatnam Port Company Ltd. - India
- Renaissance Capital - South Africa
- Indo Tambangraya Megah - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Indian Energy Exchange, India
- Billiton Holdings Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Energy Link Ltd, New Zealand
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Australian Commodity Traders Exchange
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Interocean Group of Companies - India
- Thai Mozambique Logistica
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- Riau Bara Harum - Indonesia
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Independent Power Producers Association of India
- Gujarat Mineral Development Corp Ltd - India
- Karaikal Port Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Global Coal Blending Company Limited - Australia
- Borneo Indobara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Madhucon Powers Ltd - India
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Sarangani Energy Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Pipit Mutiara Jaya. PT, Indonesia
- Tata Chemicals Ltd - India
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- SMG Consultants - Indonesia
- McConnell Dowell - Australia
- Coal and Oil Company - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Essar Steel Hazira Ltd - India
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- GMR Energy Limited - India
- PTC India Limited - India
- Coalindo Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Binh Thuan Hamico - Vietnam
- Bharathi Cement Corporation - India
- Ministry of Transport, Egypt
- Africa Commodities Group - South Africa
- Planning Commission, India
- Economic Council, Georgia
- Straits Asia Resources Limited - Singapore
- Indogreen Group - Indonesia
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Kumho Petrochemical, South Korea
- Vizag Seaport Private Limited - India
- Merrill Lynch Commodities Europe
- San Jose City I Power Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Attock Cement Pakistan Limited
- Aditya Birla Group - India
- Ministry of Finance - Indonesia
- Bhatia International Limited - India
- Alfred C Toepfer International GmbH - Germany
- SN Aboitiz Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- GAC Shipping (India) Pvt Ltd
- Malabar Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Central Java Power - Indonesia
- CIMB Investment Bank - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Heidelberg Cement - Germany
- ASAPP Information Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhoruka Overseas - Indonesia
- Petron Corporation, Philippines
- Banpu Public Company Limited - Thailand
- TeaM Sual Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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