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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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Friday, 18 November 11
MMTC SEEKS 1.365 MMT OF IMPORTED COAL
COALspot.com - India's MMTC, the largest trading company of India and a major trading company of Asia, has issued a term supply tender for 1.365Mt ...
Friday, 18 November 11
KPC, ARUTMIN OUTPUT REACHED 47.1 MIO TONS - INSIDER STORIES
PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia, reported 47.1 million tons of coal production in 9M 2011, according to Indiser Stories.
Insi ...
Friday, 18 November 11
THE ATLANTIC SUPRAMAX MARKET EXPERIENCED A STEADY AND FIRM TENDENCY
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The Atlantic Supramax market experienced a steady and firm tendency this week. Especially the North Atlantic and Mediterranean position ...
Friday, 18 November 11
BERAU COAL 9M PROFIT SOARS 194.46% - INSIDER STORIES
Insider Stories reported that, PT Berau Coal Energy Tbk (BRAU), which is 84.7% owned by Bumi Plc, reported a 194.46% jump in net profit by end of Se ...
Thursday, 17 November 11
DRY BULK MARKET INCHES FORWARD AND INTO HIGHER GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market edged higher yesterday, on the back of stronger demand for Capesize vessels and general improvement of sentiment on most of the ...
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- Thai Mozambique Logistica
- Intertek Mineral Services - Indonesia
- Central Java Power - Indonesia
- Australian Coal Association
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- Tamil Nadu electricity Board
- Bukit Makmur.PT - Indonesia
- Standard Chartered Bank - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Metalloyd Limited - United Kingdom
- Energy Development Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- Indogreen Group - Indonesia
- Kaltim Prima Coal - Indonesia
- Eastern Coal Council - USA
- GN Power Mariveles Coal Plant, Philippines
- Kartika Selabumi Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Latin American Coal - Colombia
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Rio Tinto Coal - Australia
- Orica Mining Services - Indonesia
- European Bulk Services B.V. - Netherlands
- McConnell Dowell - Australia
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Bhatia International Limited - India
- Independent Power Producers Association of India
- Posco Energy - South Korea
- Globalindo Alam Lestari - Indonesia
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Bank of Tokyo Mitsubishi UFJ Ltd
- Malabar Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Mjunction Services Limited - India
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Sojitz Corporation - Japan
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- MS Steel International - UAE
- Coalindo Energy - Indonesia
- Deloitte Consulting - India
- Commonwealth Bank - Australia
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- Price Waterhouse Coopers - Russia
- PowerSource Philippines DevCo
- Ministry of Mines - Canada
- Salva Resources Pvt Ltd - India
- Planning Commission, India
- LBH Netherlands Bv - Netherlands
- Orica Australia Pty. Ltd.
- Parliament of New Zealand
- Mintek Dendrill Indonesia
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- SN Aboitiz Power Inc, Philippines
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Ministry of Finance - Indonesia
- Sical Logistics Limited - India
- The State Trading Corporation of India Ltd
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Star Paper Mills Limited - India
- VISA Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Ind-Barath Power Infra Limited - India
- Trasteel International SA, Italy
- Borneo Indobara - Indonesia
- SMG Consultants - Indonesia
- India Bulls Power Limited - India
- Meralco Power Generation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Carbofer General Trading SA - India
- Coal and Oil Company - UAE
- Kohat Cement Company Ltd. - Pakistan
- Jaiprakash Power Ventures ltd
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Marubeni Corporation - India
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Romanian Commodities Exchange
- Anglo American - United Kingdom
- Thiess Contractors Indonesia
- CIMB Investment Bank - Malaysia
- Gujarat Sidhee Cement - India
- Electricity Generating Authority of Thailand
- Georgia Ports Authority, United States
- Semirara Mining and Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Global Business Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Banpu Public Company Limited - Thailand
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- Indo Tambangraya Megah - Indonesia
- The Treasury - Australian Government
- PetroVietnam Power Coal Import and Supply Company
- Uttam Galva Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- San Jose City I Power Corp, Philippines
- Kumho Petrochemical, South Korea
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Vizag Seaport Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Bharathi Cement Corporation - India
- Aditya Birla Group - India
- Vedanta Resources Plc - India
- Chamber of Mines of South Africa
- Sakthi Sugars Limited - India
- Power Finance Corporation Ltd., India
- Wilmar Investment Holdings
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Holcim Trading Pte Ltd - Singapore
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- Karaikal Port Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- Mercator Lines Limited - India
- Altura Mining Limited, Indonesia
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- SMC Global Power, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Electricity Authority, New Zealand
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Bayan Resources Tbk. - Indonesia
- GVK Power & Infra Limited - India
- Indian Energy Exchange, India
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- New Zealand Coal & Carbon
- PNOC Exploration Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Oldendorff Carriers - Singapore
- Minerals Council of Australia
- Ambuja Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Parry Sugars Refinery, India
- PTC India Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Renaissance Capital - South Africa
- GMR Energy Limited - India
- Straits Asia Resources Limited - Singapore
- Energy Link Ltd, New Zealand
- Economic Council, Georgia
- Maharashtra Electricity Regulatory Commission - India
- Essar Steel Hazira Ltd - India
- Toyota Tsusho Corporation, Japan
- Tata Chemicals Ltd - India
- Directorate Of Revenue Intelligence - India
- Cement Manufacturers Association - India
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- GAC Shipping (India) Pvt Ltd
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- OPG Power Generation Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
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