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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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Sunday, 25 December 11
THERMAL COAL PRICES GAINED UP TO 4.32 PERCENT
COALspot.com - globalCOAL index gained 4.32 percent to US$106.36 per ton in RBCT, benchmark for South Asia and West Europe markets, for the week end ...
Saturday, 24 December 11
CHINAS LEVEL OF GROWTH TO DETERMINE COURSE OF DRY BULK MARKET IN 2012 SAYS SHIPBROKER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
In its latest report, shipbroker Intermodal attempted to find a silver lining in the tough year that was 2011, as well as what one could expect from ...
Friday, 23 December 11
SPOT PACIFIC CAPESIZE VESSELS HAVE COMMANDED HIGH PREMIUMS - FEARNLEYS
Handy
Rates in the Atlantic kept stable from last week, with a touch of negativity closer to the end. Less spot cargoes seen, and owners are ...
Friday, 23 December 11
LANCO JOINS HANDS WITH BUKIT ASAM FOR INDONESIAN POWER PROJECT
COALspot.com - PT Tambang Batubara Bukit Asam, Indonesia's state owned coal miner and Indian based Lanco Infratech Ltd plans to build steam power p ...
Thursday, 22 December 11
RI WILL NOT PLAY CATCH-UP WITH GLOBAL COAL DEMAND - THE JAKARTA POST
The Jakarta Post reported that, the International Energy Agency (IEA) has predicted in its Coal Market Report 2011 that over the next five years, gl ...
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- Bukit Baiduri Energy - Indonesia
- Videocon Industries ltd - India
- Jindal Steel & Power Ltd - India
- Romanian Commodities Exchange
- South Luzon Thermal Energy Corporation
- Riau Bara Harum - Indonesia
- IHS Mccloskey Coal Group - USA
- Grasim Industreis Ltd - India
- Rio Tinto Coal - Australia
- Bahari Cakrawala Sebuku - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Global Coal Blending Company Limited - Australia
- Indian Oil Corporation Limited
- PetroVietnam Power Coal Import and Supply Company
- Aditya Birla Group - India
- Coalindo Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Asmin Koalindo Tuhup - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Marubeni Corporation - India
- London Commodity Brokers - England
- Planning Commission, India
- Interocean Group of Companies - India
- San Jose City I Power Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- Medco Energi Mining Internasional
- Coastal Gujarat Power Limited - India
- Ministry of Mines - Canada
- Ceylon Electricity Board - Sri Lanka
- Mercuria Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Electricity Generating Authority of Thailand
- GN Power Mariveles Coal Plant, Philippines
- Kobexindo Tractors - Indoneisa
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Trasteel International SA, Italy
- Semirara Mining and Power Corporation, Philippines
- Indogreen Group - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Merrill Lynch Commodities Europe
- Wood Mackenzie - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Power Finance Corporation Ltd., India
- Kumho Petrochemical, South Korea
- Heidelberg Cement - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Xindia Steels Limited - India
- Bhoruka Overseas - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Independent Power Producers Association of India
- Mjunction Services Limited - India
- Bukit Makmur.PT - Indonesia
- Eastern Energy - Thailand
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Coal and Oil Company - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- Makarim & Taira - Indonesia
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- TeaM Sual Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Directorate Of Revenue Intelligence - India
- Semirara Mining Corp, Philippines
- Global Business Power Corporation, Philippines
- McConnell Dowell - Australia
- Minerals Council of Australia
- Latin American Coal - Colombia
- Edison Trading Spa - Italy
- Indo Tambangraya Megah - Indonesia
- Ambuja Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- GVK Power & Infra Limited - India
- Simpson Spence & Young - Indonesia
- Bayan Resources Tbk. - Indonesia
- Essar Steel Hazira Ltd - India
- White Energy Company Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Sical Logistics Limited - India
- Holcim Trading Pte Ltd - Singapore
- The Treasury - Australian Government
- Gujarat Electricity Regulatory Commission - India
- Kalimantan Lumbung Energi - Indonesia
- Altura Mining Limited, Indonesia
- Mercator Lines Limited - India
- Bangladesh Power Developement Board
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Agrawal Coal Company - India
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- Bharathi Cement Corporation - India
- Bhushan Steel Limited - India
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- ASAPP Information Group - India
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- Thai Mozambique Logistica
- Petron Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Intertek Mineral Services - Indonesia
- Indonesian Coal Mining Association
- Baramulti Group, Indonesia
- Metalloyd Limited - United Kingdom
- Larsen & Toubro Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Sojitz Corporation - Japan
- CNBM International Corporation - China
- Toyota Tsusho Corporation, Japan
- Australian Coal Association
- Carbofer General Trading SA - India
- PTC India Limited - India
- Parliament of New Zealand
- SN Aboitiz Power Inc, Philippines
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Kideco Jaya Agung - Indonesia
- Aboitiz Power Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- The University of Queensland
- PowerSource Philippines DevCo
- Singapore Mercantile Exchange
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- OPG Power Generation Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Wilmar Investment Holdings
- Gujarat Sidhee Cement - India
- Eastern Coal Council - USA
- Sakthi Sugars Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Timah Investasi Mineral - Indoneisa
- Dalmia Cement Bharat India
- Africa Commodities Group - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- MS Steel International - UAE
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Central Java Power - Indonesia
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Straits Asia Resources Limited - Singapore
- Star Paper Mills Limited - India
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- Central Electricity Authority - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- SMC Global Power, Philippines
- Therma Luzon, Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Lanco Infratech Ltd - India
- International Coal Ventures Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Kartika Selabumi Mining - Indonesia
- Chamber of Mines of South Africa
- Ministry of Transport, Egypt
- Meralco Power Generation, Philippines
- Sree Jayajothi Cements Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Attock Cement Pakistan Limited
- Energy Development Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- European Bulk Services B.V. - Netherlands
- Sindya Power Generating Company Private Ltd
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- IEA Clean Coal Centre - UK
- Karaikal Port Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Oldendorff Carriers - Singapore
- Port Waratah Coal Services - Australia
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- Parry Sugars Refinery, India
- Ministry of Finance - Indonesia
- Kepco SPC Power Corporation, Philippines
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