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