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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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Monday, 12 December 11
DRY BULK MARKET LOOKING FOR BALANCE AS WE ENTER 2012 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
During the past few months, freight rates for dry bulk carriers, especially Capesizes have increased significantly, providing ship owners with a muc ...
Sunday, 11 December 11
THE PANAMAX INDEX ENDED ON POSITIVE DIRECTION - VISTAAR
COALspot.com - The BDI and Cape index continued the upward trend this week also with BDI up by 3.00 pct closing at 1,922 points and Cape index up by ...
Saturday, 10 December 11
MAHAKAM RIVER RESUMES COAL TRANSPORTATION
COALspot.com - East Kalimantan local government has resumed limited coal barging through Mahakam River after two weeks of suspension following the c ...
Friday, 09 December 11
DRY BULK MARKET REBOUNDS ON HEALTHIER DEMAND OUTLOOK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market edged forward yesterday, at the highest rate of the past couple of weeks, as a result of stonger iron ore demand, backed by lowe ...
Thursday, 08 December 11
INDIA MAY SEE 41% ANNUAL GROWTH OF ITS COAL DEMAND DURING THE NEXT 5 YEARS - ICAP SHIPPING
India’s Ministry of Coal expects that India’s coal demand may face an annual 41% rise during the next 5 years, while its coal deficit is ...
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- Jindal Steel & Power Ltd - India
- Jaiprakash Power Ventures ltd
- Lanco Infratech Ltd - India
- Aditya Birla Group - India
- Billiton Holdings Pty Ltd - Australia
- Meenaskhi Energy Private Limited - India
- Chettinad Cement Corporation Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Price Waterhouse Coopers - Russia
- Ministry of Transport, Egypt
- Minerals Council of Australia
- Alfred C Toepfer International GmbH - Germany
- Tamil Nadu electricity Board
- Marubeni Corporation - India
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Commonwealth Bank - Australia
- Eastern Energy - Thailand
- Orica Australia Pty. Ltd.
- OPG Power Generation Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- ASAPP Information Group - India
- Coastal Gujarat Power Limited - India
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Sindya Power Generating Company Private Ltd
- Bhoruka Overseas - Indonesia
- Global Green Power PLC Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Oldendorff Carriers - Singapore
- Kideco Jaya Agung - Indonesia
- SMG Consultants - Indonesia
- Bukit Baiduri Energy - Indonesia
- Xindia Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Independent Power Producers Association of India
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Therma Luzon, Inc, Philippines
- The University of Queensland
- Vedanta Resources Plc - India
- Orica Mining Services - Indonesia
- Tata Chemicals Ltd - India
- Rio Tinto Coal - Australia
- Straits Asia Resources Limited - Singapore
- Krishnapatnam Port Company Ltd. - India
- Antam Resourcindo - Indonesia
- McConnell Dowell - Australia
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Economic Council, Georgia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- India Bulls Power Limited - India
- Ambuja Cements Ltd - India
- Vizag Seaport Private Limited - India
- Sakthi Sugars Limited - India
- South Luzon Thermal Energy Corporation
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Salva Resources Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Romanian Commodities Exchange
- TeaM Sual Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Iligan Light & Power Inc, Philippines
- PTC India Limited - India
- Thai Mozambique Logistica
- Interocean Group of Companies - India
- Essar Steel Hazira Ltd - India
- Kaltim Prima Coal - Indonesia
- Energy Link Ltd, New Zealand
- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Star Paper Mills Limited - India
- Pendopo Energi Batubara - Indonesia
- Renaissance Capital - South Africa
- SN Aboitiz Power Inc, Philippines
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- GMR Energy Limited - India
- Makarim & Taira - Indonesia
- White Energy Company Limited
- Central Java Power - Indonesia
- Kobexindo Tractors - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- Deloitte Consulting - India
- Maheswari Brothers Coal Limited - India
- Bharathi Cement Corporation - India
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Mintek Dendrill Indonesia
- Gujarat Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- Leighton Contractors Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Toyota Tsusho Corporation, Japan
- Posco Energy - South Korea
- Cigading International Bulk Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Holcim Trading Pte Ltd - Singapore
- Directorate Of Revenue Intelligence - India
- International Coal Ventures Pvt Ltd - India
- Indonesian Coal Mining Association
- Bulk Trading Sa - Switzerland
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Meralco Power Generation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Carbofer General Trading SA - India
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- Global Coal Blending Company Limited - Australia
- Port Waratah Coal Services - Australia
- Timah Investasi Mineral - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- LBH Netherlands Bv - Netherlands
- Standard Chartered Bank - UAE
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- PowerSource Philippines DevCo
- MS Steel International - UAE
- Grasim Industreis Ltd - India
- Eastern Coal Council - USA
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Wilmar Investment Holdings
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- Karaikal Port Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Parry Sugars Refinery, India
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- Cement Manufacturers Association - India
- IHS Mccloskey Coal Group - USA
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Ministry of Mines - Canada
- Attock Cement Pakistan Limited
- ICICI Bank Limited - India
- Ministry of Finance - Indonesia
- Indo Tambangraya Megah - Indonesia
- Wood Mackenzie - Singapore
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- SMC Global Power, Philippines
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- Binh Thuan Hamico - Vietnam
- Malabar Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Larsen & Toubro Limited - India
- Merrill Lynch Commodities Europe
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Heidelberg Cement - Germany
- Mercator Lines Limited - India
- VISA Power Limited - India
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining Corp, Philippines
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
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