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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, 22 December 11
DRY BULK MARKET KEEPS LOSING TRACTION AHEAD OF HOLIDAY SEASON - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market kept retreating in the middle of the week, as charterers seem to be looking towards the holiday season and the start of the new ye ...
Tuesday, 20 December 11
THE COAL IMPORT INTO CHINA WAS QUIETER AS COAL STOCKS WERE AT HIGH LEVELS - BRS
The BDI ended the week at 1888 points (-1.8%), the BCI corrected to 3572 (-3.4%), the BPI was up at 1,775 (+3.6%), the BSI dropped to 1193 (-3.0%) a ...
Tuesday, 20 December 11
INDIA IMPORTS 66.41 PERCENT MORE COAL FROM INDONESIA LAST MONTH - SOURCES
COALspot.com: Indonesia, the world largest coal exporter, shipped 33.476* mln mt of coal in November, which is slightly higher than its Octobe ...
Monday, 19 December 11
KOPEX COMMITS ADDITIONAL ONE MILLION DOLLAR FOR PT TRANSCOAL MINERGY
COALspot.com - Mining contractor Kopex has agreed to extend a further US$1 million to finance the remainder of the expanded drill program at PT Tran ...
Monday, 19 December 11
PLN WILL NO LONGER BUY COAL FROM TRADERS
COALspot.com - Indonesia's state electricity company PT Perusahaan Listrik Negara will no longer allow traders to become their suppliers, said, its ...
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- Energy Link Ltd, New Zealand
- Bukit Makmur.PT - Indonesia
- Indian Energy Exchange, India
- GVK Power & Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Formosa Plastics Group - Taiwan
- Simpson Spence & Young - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Larsen & Toubro Limited - India
- SMC Global Power, Philippines
- Kapuas Tunggal Persada - Indonesia
- Jindal Steel & Power Ltd - India
- Attock Cement Pakistan Limited
- Leighton Contractors Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Sindya Power Generating Company Private Ltd
- Oldendorff Carriers - Singapore
- Krishnapatnam Port Company Ltd. - India
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
- Petron Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- Bhatia International Limited - India
- Videocon Industries ltd - India
- Xindia Steels Limited - India
- Iligan Light & Power Inc, Philippines
- India Bulls Power Limited - India
- Economic Council, Georgia
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Power Finance Corporation Ltd., India
- Lanco Infratech Ltd - India
- Savvy Resources Ltd - HongKong
- Bayan Resources Tbk. - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Coal Association
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Ministry of Mines - Canada
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Wilmar Investment Holdings
- Neyveli Lignite Corporation Ltd, - India
- Cement Manufacturers Association - India
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- ASAPP Information Group - India
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Coal Council - USA
- Binh Thuan Hamico - Vietnam
- Kumho Petrochemical, South Korea
- Georgia Ports Authority, United States
- PowerSource Philippines DevCo
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The Treasury - Australian Government
- Chamber of Mines of South Africa
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Toyota Tsusho Corporation, Japan
- PNOC Exploration Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Energy Development Corp, Philippines
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Australian Commodity Traders Exchange
- Siam City Cement PLC, Thailand
- Thai Mozambique Logistica
- OPG Power Generation Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Price Waterhouse Coopers - Russia
- Trasteel International SA, Italy
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Maheswari Brothers Coal Limited - India
- Vedanta Resources Plc - India
- Posco Energy - South Korea
- The University of Queensland
- Bhoruka Overseas - Indonesia
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Intertek Mineral Services - Indonesia
- Coal and Oil Company - UAE
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Mintek Dendrill Indonesia
- Bharathi Cement Corporation - India
- Agrawal Coal Company - India
- Riau Bara Harum - Indonesia
- Interocean Group of Companies - India
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- Chettinad Cement Corporation Ltd - India
- Straits Asia Resources Limited - Singapore
- Orica Australia Pty. Ltd.
- Kobexindo Tractors - Indoneisa
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- Bulk Trading Sa - Switzerland
- Altura Mining Limited, Indonesia
- Mercator Lines Limited - India
- Ambuja Cements Ltd - India
- Vizag Seaport Private Limited - India
- SN Aboitiz Power Inc, Philippines
- White Energy Company Limited
- CNBM International Corporation - China
- Coalindo Energy - Indonesia
- Indika Energy - Indonesia
- Global Business Power Corporation, Philippines
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- Billiton Holdings Pty Ltd - Australia
- Bhushan Steel Limited - India
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- IEA Clean Coal Centre - UK
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- VISA Power Limited - India
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Ministry of Finance - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining Corp, Philippines
- PTC India Limited - India
- Kartika Selabumi Mining - Indonesia
- Siam City Cement - Thailand
- Sree Jayajothi Cements Limited - India
- Sarangani Energy Corporation, Philippines
- New Zealand Coal & Carbon
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Globalindo Alam Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Meenaskhi Energy Private Limited - India
- Goldman Sachs - Singapore
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Electricity Generating Authority of Thailand
- The State Trading Corporation of India Ltd
- GMR Energy Limited - India
- Baramulti Group, Indonesia
- Coastal Gujarat Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Indonesian Coal Mining Association
- Sical Logistics Limited - India
- Banpu Public Company Limited - Thailand
- Parry Sugars Refinery, India
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Electricity Authority, New Zealand
- IHS Mccloskey Coal Group - USA
- Tata Chemicals Ltd - India
- Anglo American - United Kingdom
- Central Java Power - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- Heidelberg Cement - Germany
- Indian Oil Corporation Limited
- Samtan Co., Ltd - South Korea
- Vijayanagar Sugar Pvt Ltd - India
- Mjunction Services Limited - India
- Merrill Lynch Commodities Europe
- South Luzon Thermal Energy Corporation
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kalimantan Lumbung Energi - Indonesia
- Eastern Energy - Thailand
- Rio Tinto Coal - Australia
- Antam Resourcindo - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- Alfred C Toepfer International GmbH - Germany
- Latin American Coal - Colombia
- CIMB Investment Bank - Malaysia
- Madhucon Powers Ltd - India
- Salva Resources Pvt Ltd - India
- Sojitz Corporation - Japan
- European Bulk Services B.V. - Netherlands
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