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