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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, 01 December 11
DRY BULK MARKET RISES TO NEW HEIGHTS ON RENEWED DEMAND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept on rising this week, with the industry’s benchmark, the Baltic Dry Index (BDI) climbing to 1,846 points on Wednes ...
Tuesday, 29 November 11
SOUTH AFRICAN COAL INTO CHINA, THE ACTIVITY WAS SLOW - BRS
Capesize
The Capesize market in Atlantic stayed pretty firm last week with transatlantic rounds being fixed in the high twenties. Sentiment was les ...
Tuesday, 29 November 11
GOLDEN GATE BRIDGE OF INDONESIA COLLAPSED AT KUKAR, EAST KALIMANTAN
COALspot.com - A suspension bridge in Indonesia’s east Kalimantan province over the Mahakam river collapsed on Saturday, killing at least elev ...
Tuesday, 29 November 11
BUKIT ASAM SCOUTS RP3 TRILLION PROFIT - INSIDER STORIES
The state-controlled coal miner PT Bukit Asam Tbk (PTBA) expects to post a Rp3 trillion net income this year, reaching its target which is 50% above ...
Tuesday, 29 November 11
DRY BULK MARKET BEGINS WEEK ON HIGHER NOTE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Contrary to what had been the case during the past few weeks, this one began on a high note for the dry bulk market, with the Capesize sector pullin ...
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- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
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- Altura Mining Limited, Indonesia
- Global Green Power PLC Corporation, Philippines
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- Xindia Steels Limited - India
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Simpson Spence & Young - Indonesia
- Bangladesh Power Developement Board
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Bhoruka Overseas - Indonesia
- The University of Queensland
- Sinarmas Energy and Mining - Indonesia
- Merrill Lynch Commodities Europe
- Kapuas Tunggal Persada - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- PTC India Limited - India
- Rio Tinto Coal - Australia
- Intertek Mineral Services - Indonesia
- MS Steel International - UAE
- Star Paper Mills Limited - India
- Grasim Industreis Ltd - India
- Globalindo Alam Lestari - Indonesia
- Ministry of Finance - Indonesia
- Bharathi Cement Corporation - India
- Price Waterhouse Coopers - Russia
- Metalloyd Limited - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
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- Ceylon Electricity Board - Sri Lanka
- Mercuria Energy - Indonesia
- Latin American Coal - Colombia
- Malabar Cements Ltd - India
- Port Waratah Coal Services - Australia
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Carbofer General Trading SA - India
- ASAPP Information Group - India
- Ministry of Transport, Egypt
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Straits Asia Resources Limited - Singapore
- Central Java Power - Indonesia
- Aboitiz Power Corporation - Philippines
- Petron Corporation, Philippines
- Power Finance Corporation Ltd., India
- Ministry of Mines - Canada
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
- Jindal Steel & Power Ltd - India
- Aditya Birla Group - India
- Petrochimia International Co. Ltd.- Taiwan
- Deloitte Consulting - India
- Sakthi Sugars Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Economic Council, Georgia
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- Bhatia International Limited - India
- Posco Energy - South Korea
- Central Electricity Authority - India
- Leighton Contractors Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Karaikal Port Pvt Ltd - India
- McConnell Dowell - Australia
- SMG Consultants - Indonesia
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Karbindo Abesyapradhi - Indoneisa
- Kaltim Prima Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Iligan Light & Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Minerals Council of Australia
- Alfred C Toepfer International GmbH - Germany
- Meralco Power Generation, Philippines
- IEA Clean Coal Centre - UK
- Eastern Coal Council - USA
- Makarim & Taira - Indonesia
- Planning Commission, India
- Dalmia Cement Bharat India
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- International Coal Ventures Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Orica Australia Pty. Ltd.
- GVK Power & Infra Limited - India
- Bhushan Steel Limited - India
- Timah Investasi Mineral - Indoneisa
- Bukit Makmur.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Interocean Group of Companies - India
- Binh Thuan Hamico - Vietnam
- India Bulls Power Limited - India
- Wood Mackenzie - Singapore
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Parry Sugars Refinery, India
- Toyota Tsusho Corporation, Japan
- Larsen & Toubro Limited - India
- Agrawal Coal Company - India
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Oldendorff Carriers - Singapore
- SN Aboitiz Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Krishnapatnam Port Company Ltd. - India
- ICICI Bank Limited - India
- Sojitz Corporation - Japan
- Indian Oil Corporation Limited
- Siam City Cement - Thailand
- Vizag Seaport Private Limited - India
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Formosa Plastics Group - Taiwan
- GAC Shipping (India) Pvt Ltd
- Therma Luzon, Inc, Philippines
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Meenaskhi Energy Private Limited - India
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Kumho Petrochemical, South Korea
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- Independent Power Producers Association of India
- Siam City Cement PLC, Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Coal and Oil Company - UAE
- Kohat Cement Company Ltd. - Pakistan
- Ind-Barath Power Infra Limited - India
- Electricity Generating Authority of Thailand
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Cement Manufacturers Association - India
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Samtan Co., Ltd - South Korea
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Indian Energy Exchange, India
- Commonwealth Bank - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Kobexindo Tractors - Indoneisa
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- Global Coal Blending Company Limited - Australia
- GN Power Mariveles Coal Plant, Philippines
- Antam Resourcindo - Indonesia
- TeaM Sual Corporation - Philippines
- Riau Bara Harum - Indonesia
- Tata Chemicals Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Jaiprakash Power Ventures ltd
- Africa Commodities Group - South Africa
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pendopo Energi Batubara - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
- Energy Link Ltd, New Zealand
- South Luzon Thermal Energy Corporation
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- Sindya Power Generating Company Private Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Coalindo Energy - Indonesia
- Global Business Power Corporation, Philippines
- Indika Energy - Indonesia
- Parliament of New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- OPG Power Generation Pvt Ltd - India
- Renaissance Capital - South Africa
- Uttam Galva Steels Limited - India
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