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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, 29 December 11
NEW VESSELS DELIVERED ARE FLOODING THE OCEANS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
As expected 2011 has been the year that newbuilding deliveries peaked and kept "flooding" the market, thus supressing freight rates and er ...
Tuesday, 27 December 11
MINERS MAKE CASE FOR RESUMING CONTRACT NEGOTIATIONS - THE JAKARTA POST
The Jakarta Post reported that, problems with the renegotiation of mining contracts in the country are far from over, as agreements on several cruci ...
Tuesday, 27 December 11
COAL SHIPMENT OF TIANJIN PORT REACHED 6.72 MLN TONNES IN NOVEMBER - STEEL HOME / HELLENIC SHIPPING
Tianjin port shipped 6.72 million tonnes of coal in November, decreasing 600,000 tonnes versus 7.32 million tonnes in October, while up 21.09% or 1. ...
Tuesday, 27 December 11
NEW CLAUSE PUBLISHED FOR SLOW STEAMING - BIMCO
Many owners and operators faced with high bunker prices are considering implementing slow steaming regimes to save fuel and to assist with capacity ...
Monday, 26 December 11
NEW EXPORT TAX PLAN GREETED WITH PRAISE AND CRITICISM - THE JAKARTA POST
The Jakarta Post, one of the Indonesia's leading english news paper reported that, both praise and criticism showered the government’s plan t ...
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- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Attock Cement Pakistan Limited
- Sree Jayajothi Cements Limited - India
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Directorate Of Revenue Intelligence - India
- Cement Manufacturers Association - India
- Xindia Steels Limited - India
- Timah Investasi Mineral - Indoneisa
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- PTC India Limited - India
- GAC Shipping (India) Pvt Ltd
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Thai Mozambique Logistica
- McConnell Dowell - Australia
- Savvy Resources Ltd - HongKong
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Semirara Mining Corp, Philippines
- Grasim Industreis Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Anglo American - United Kingdom
- Ind-Barath Power Infra Limited - India
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- ASAPP Information Group - India
- Karbindo Abesyapradhi - Indoneisa
- Kaltim Prima Coal - Indonesia
- Eastern Coal Council - USA
- Central Electricity Authority - India
- Videocon Industries ltd - India
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Heidelberg Cement - Germany
- Global Coal Blending Company Limited - Australia
- Kepco SPC Power Corporation, Philippines
- The University of Queensland
- Parry Sugars Refinery, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Simpson Spence & Young - Indonesia
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- Australian Coal Association
- Semirara Mining and Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Posco Energy - South Korea
- Makarim & Taira - Indonesia
- Singapore Mercantile Exchange
- Commonwealth Bank - Australia
- Siam City Cement - Thailand
- Altura Mining Limited, Indonesia
- Minerals Council of Australia
- PetroVietnam Power Coal Import and Supply Company
- Planning Commission, India
- Jaiprakash Power Ventures ltd
- Power Finance Corporation Ltd., India
- Sakthi Sugars Limited - India
- Eastern Energy - Thailand
- The State Trading Corporation of India Ltd
- TeaM Sual Corporation - Philippines
- VISA Power Limited - India
- Baramulti Group, Indonesia
- Marubeni Corporation - India
- Price Waterhouse Coopers - Russia
- Bukit Makmur.PT - Indonesia
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Indonesian Coal Mining Association
- Borneo Indobara - Indonesia
- The Treasury - Australian Government
- Ceylon Electricity Board - Sri Lanka
- Banpu Public Company Limited - Thailand
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Romanian Commodities Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Mines - Canada
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Meralco Power Generation, Philippines
- Wood Mackenzie - Singapore
- Star Paper Mills Limited - India
- Renaissance Capital - South Africa
- SN Aboitiz Power Inc, Philippines
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- Mercator Lines Limited - India
- Standard Chartered Bank - UAE
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Aditya Birla Group - India
- Mercuria Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Ambuja Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Latin American Coal - Colombia
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Kumho Petrochemical, South Korea
- Oldendorff Carriers - Singapore
- Chettinad Cement Corporation Ltd - India
- LBH Netherlands Bv - Netherlands
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Thiess Contractors Indonesia
- Toyota Tsusho Corporation, Japan
- New Zealand Coal & Carbon
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Agrawal Coal Company - India
- Interocean Group of Companies - India
- Electricity Generating Authority of Thailand
- Globalindo Alam Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Indogreen Group - Indonesia
- Energy Link Ltd, New Zealand
- Petron Corporation, Philippines
- Orica Mining Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Parliament of New Zealand
- Straits Asia Resources Limited - Singapore
- Maheswari Brothers Coal Limited - India
- Miang Besar Coal Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Sindya Power Generating Company Private Ltd
- Cigading International Bulk Terminal - Indonesia
- Bhushan Steel Limited - India
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Gujarat Sidhee Cement - India
- Independent Power Producers Association of India
- Electricity Authority, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Coal and Oil Company - UAE
- Directorate General of MIneral and Coal - Indonesia
- Therma Luzon, Inc, Philippines
- MS Steel International - UAE
- Goldman Sachs - Singapore
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Mintek Dendrill Indonesia
- Bangladesh Power Developement Board
- ICICI Bank Limited - India
- Indika Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Essar Steel Hazira Ltd - India
- Bulk Trading Sa - Switzerland
- Chamber of Mines of South Africa
- Salva Resources Pvt Ltd - India
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- Port Waratah Coal Services - Australia
- Energy Development Corp, Philippines
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Economic Council, Georgia
- Larsen & Toubro Limited - India
- CIMB Investment Bank - Malaysia
- Indian Oil Corporation Limited
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Indian Energy Exchange, India
- Edison Trading Spa - Italy
- Sojitz Corporation - Japan
- Barasentosa Lestari - Indonesia
- Deloitte Consulting - India
- European Bulk Services B.V. - Netherlands
- Kobexindo Tractors - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- GMR Energy Limited - India
- Tata Chemicals Ltd - India
- PNOC Exploration Corporation - Philippines
- Tamil Nadu electricity Board
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Vizag Seaport Private Limited - India
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