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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, 08 December 11
HAREDA KRIDA GETS CONTRACT FROM BAYAN - INSIDER STORIES
Insider Stories reported that, coal miner PT Bayan Resources Tbk (BYAN), through its subsidiary dubbed PT Gunungbayan Pratamacoal (GPB), has signed ...
Thursday, 08 December 11
CAPESIZES LIFT DRY BULK MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Capesize vessels yesterday helped lift the dry bulk market which had been falling since the start of the week on lower cargo demand. As a result the ...
Wednesday, 07 December 11
ABM INVESTAMA EYES RP6.3 TRIO REVENUE - INSIDER STORIES
Insider Stories reported that, an energy integrated company PT ABM Investama Tbk is eyeing a 1.5 folds increase in revenue this year from Rp4. ...
Tuesday, 06 December 11
DRY BULK MARKET ENDS RALLY, STARTS WEEK WITH FALL - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
After a series of increases which saw the dry bulk market’s benchmark, the Baltic Dry Index (BDI) increasing close to 1,900 points and rates o ...
Monday, 05 December 11
THE DECEMBER HBA FELL 11% FROM ITS PEAK AT US$127.05 PER TON IN FEBRUARY 2011
COALspot.com - Ministry of Energy and Mineral Resources of Indonesia has sets the December 2011 coal reference price at US$ 112.67 per ton US$ 3.98 ...
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- Heidelberg Cement - Germany
- Orica Australia Pty. Ltd.
- Baramulti Group, Indonesia
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- Bhatia International Limited - India
- Global Coal Blending Company Limited - Australia
- Parliament of New Zealand
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- CNBM International Corporation - China
- Ministry of Mines - Canada
- Gujarat Sidhee Cement - India
- Indogreen Group - Indonesia
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Indian Energy Exchange, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Straits Asia Resources Limited - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Anglo American - United Kingdom
- ASAPP Information Group - India
- Deloitte Consulting - India
- Planning Commission, India
- Sical Logistics Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- India Bulls Power Limited - India
- Barasentosa Lestari - Indonesia
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- Economic Council, Georgia
- Rio Tinto Coal - Australia
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- White Energy Company Limited
- IHS Mccloskey Coal Group - USA
- Sinarmas Energy and Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Romanian Commodities Exchange
- Binh Thuan Hamico - Vietnam
- The Treasury - Australian Government
- SN Aboitiz Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- The University of Queensland
- Electricity Authority, New Zealand
- Meenaskhi Energy Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parry Sugars Refinery, India
- Bulk Trading Sa - Switzerland
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Samtan Co., Ltd - South Korea
- Electricity Generating Authority of Thailand
- Metalloyd Limited - United Kingdom
- The State Trading Corporation of India Ltd
- Timah Investasi Mineral - Indoneisa
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Goldman Sachs - Singapore
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- Videocon Industries ltd - India
- Alfred C Toepfer International GmbH - Germany
- Star Paper Mills Limited - India
- Power Finance Corporation Ltd., India
- Thai Mozambique Logistica
- PNOC Exploration Corporation - Philippines
- VISA Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Global Business Power Corporation, Philippines
- MS Steel International - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Borneo Indobara - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PetroVietnam Power Coal Import and Supply Company
- Petron Corporation, Philippines
- Tamil Nadu electricity Board
- South Luzon Thermal Energy Corporation
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- Bukit Makmur.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Antam Resourcindo - Indonesia
- Jindal Steel & Power Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Merrill Lynch Commodities Europe
- Malabar Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Attock Cement Pakistan Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- Australian Commodity Traders Exchange
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Krishnapatnam Port Company Ltd. - India
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Posco Energy - South Korea
- Riau Bara Harum - Indonesia
- Trasteel International SA, Italy
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Sakthi Sugars Limited - India
- New Zealand Coal & Carbon
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Chamber of Mines of South Africa
- Interocean Group of Companies - India
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Thiess Contractors Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Directorate Of Revenue Intelligence - India
- GMR Energy Limited - India
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Asmin Koalindo Tuhup - Indonesia
- Globalindo Alam Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Semirara Mining Corp, Philippines
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
- Eastern Coal Council - USA
- Ministry of Finance - Indonesia
- Grasim Industreis Ltd - India
- Bhoruka Overseas - Indonesia
- Energy Link Ltd, New Zealand
- Singapore Mercantile Exchange
- Global Green Power PLC Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mjunction Services Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Orica Mining Services - Indonesia
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- PowerSource Philippines DevCo
- Cigading International Bulk Terminal - Indonesia
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- PTC India Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Intertek Mineral Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Kumho Petrochemical, South Korea
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- Toyota Tsusho Corporation, Japan
- Iligan Light & Power Inc, Philippines
- Renaissance Capital - South Africa
- Minerals Council of Australia
- Mercator Lines Limited - India
- Australian Coal Association
- Kaltim Prima Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Commonwealth Bank - Australia
- Ministry of Transport, Egypt
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Wilmar Investment Holdings
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- Ind-Barath Power Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- San Jose City I Power Corp, Philippines
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Essar Steel Hazira Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Aditya Birla Group - India
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