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