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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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Wednesday, 14 December 11
MINER TOBA BARA SEJAHTRA PLANS IPO IN 1ST HALF OF 2012 - THE JAKARTA GLOBE
The Jakarta Globe reported that, Coal miner Toba Bara Sejahtra is aiming high next year, hoping to capitalize on renewed bullish sentiment in the lo ...
Wednesday, 14 December 11
TIMAH PLANS TO BOOST ITS COAL PRODUCTION TO TWO MILLION TONS PER ANNUM - SOURCES
COALspot.com - Timah plans to boost its coal production to two million tons per annum. The company also expects to acquire coal concession with mini ...
Wednesday, 14 December 11
BORNEO RESOURCE INVESTMENTS LTD. FINALIZES ACQUISITION OF INTEGRA PRIMA
COALspot.com - Borneo Resource Investments Ltd., announced that it has finalized the acquisition of an additional 1,300 hectare coal mining concessi ...
Tuesday, 13 December 11
BERAU COAL SCOUTS US$1.61 BIO SALES - INSIDER STORIES
Insider Stories reported that, coal mining company PT Berau Coal Energy Tbk (BRAU), that is 85% owned by London-listed company Bumi Plc, estimates a ...
Tuesday, 13 December 11
CAPESIZES AND PANAMAXES LEAD DRY BULK MARKET HIGHER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market inched closer to the 2,000 mark on Monday, with Panamaxes rebounding firmly and leading the gains. As a result, the industry&rsq ...
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- Indo Tambangraya Megah - Indonesia
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- Singapore Mercantile Exchange
- IHS Mccloskey Coal Group - USA
- Pendopo Energi Batubara - Indonesia
- Borneo Indobara - Indonesia
- Eastern Energy - Thailand
- Jorong Barutama Greston.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Electricity Generating Authority of Thailand
- Semirara Mining and Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- PTC India Limited - India
- Siam City Cement PLC, Thailand
- PNOC Exploration Corporation - Philippines
- MS Steel International - UAE
- Holcim Trading Pte Ltd - Singapore
- Georgia Ports Authority, United States
- Savvy Resources Ltd - HongKong
- Videocon Industries ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vizag Seaport Private Limited - India
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
- Bukit Makmur.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- GAC Shipping (India) Pvt Ltd
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- TeaM Sual Corporation - Philippines
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- Australian Coal Association
- Riau Bara Harum - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sojitz Corporation - Japan
- Altura Mining Limited, Indonesia
- Mercator Lines Limited - India
- Port Waratah Coal Services - Australia
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
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- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- White Energy Company Limited
- Ambuja Cements Ltd - India
- IEA Clean Coal Centre - UK
- Directorate Of Revenue Intelligence - India
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- Economic Council, Georgia
- Billiton Holdings Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Indika Energy - Indonesia
- Posco Energy - South Korea
- Attock Cement Pakistan Limited
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Edison Trading Spa - Italy
- Indian Oil Corporation Limited
- ICICI Bank Limited - India
- Bhatia International Limited - India
- Energy Link Ltd, New Zealand
- San Jose City I Power Corp, Philippines
- Siam City Cement - Thailand
- Meralco Power Generation, Philippines
- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- Pipit Mutiara Jaya. PT, Indonesia
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Independent Power Producers Association of India
- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Kumho Petrochemical, South Korea
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Xindia Steels Limited - India
- Banpu Public Company Limited - Thailand
- Ceylon Electricity Board - Sri Lanka
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- The Treasury - Australian Government
- GVK Power & Infra Limited - India
- Deloitte Consulting - India
- Chettinad Cement Corporation Ltd - India
- Star Paper Mills Limited - India
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Antam Resourcindo - Indonesia
- Manunggal Multi Energi - Indonesia
- Renaissance Capital - South Africa
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Merrill Lynch Commodities Europe
- PowerSource Philippines DevCo
- Malabar Cements Ltd - India
- Semirara Mining Corp, Philippines
- SMG Consultants - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- South Luzon Thermal Energy Corporation
- Lanco Infratech Ltd - India
- Grasim Industreis Ltd - India
- The State Trading Corporation of India Ltd
- GMR Energy Limited - India
- Kideco Jaya Agung - Indonesia
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Central Electricity Authority - India
- Kaltim Prima Coal - Indonesia
- Power Finance Corporation Ltd., India
- Asmin Koalindo Tuhup - Indonesia
- Heidelberg Cement - Germany
- Parry Sugars Refinery, India
- Parliament of New Zealand
- Oldendorff Carriers - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Kepco SPC Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Jindal Steel & Power Ltd - India
- Central Java Power - Indonesia
- Larsen & Toubro Limited - India
- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Price Waterhouse Coopers - Russia
- Kapuas Tunggal Persada - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Goldman Sachs - Singapore
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Straits Asia Resources Limited - Singapore
- Bhoruka Overseas - Indonesia
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Romanian Commodities Exchange
- Planning Commission, India
- Indogreen Group - Indonesia
- Cement Manufacturers Association - India
- Mercuria Energy - Indonesia
- ASAPP Information Group - India
- International Coal Ventures Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- Sical Logistics Limited - India
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tata Chemicals Ltd - India
- CIMB Investment Bank - Malaysia
- Aditya Birla Group - India
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Marubeni Corporation - India
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Petron Corporation, Philippines
- Coalindo Energy - Indonesia
- Sakthi Sugars Limited - India
- Maheswari Brothers Coal Limited - India
- Orica Australia Pty. Ltd.
- European Bulk Services B.V. - Netherlands
- Salva Resources Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Trasteel International SA, Italy
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Anglo American - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Iligan Light & Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
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