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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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Saturday, 12 November 11
DRY BULK MARKET REGAINS SOME OF THE LOST GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market managed to edge forward yesterday, putting an end and halting the losses accumulated over the course of the past weeks, which ha ...
Friday, 11 November 11
PETROCOM ENERGY PLANS $40M TO BUILD COAL PLANT IN CILEGON - JP
The Jakarta Post reported that, Hong Kong-based Petrocom Energy Ltd has unveiled plans to invest up to US$40 million on a proposed coal-blending fac ...
Friday, 11 November 11
GOVT WAITS LEGAL DECISION ON BUKIT ASAM, ADARO DISPUTE - JP
The Jakarta Post reported that, The government says that it will not interfere in the settlement process of the dispute between state coal miner PT ...
Thursday, 10 November 11
INDONESIAN REFERENCE COAL PRICE FELL AGAIN
COALspot.com - Ministry of Energy and Mineral Resources of Indonesia has set the November 2011 Indonesian Coal Reference Price for thermal coal at U ...
Tuesday, 08 November 11
COAL MINER ABM INVESTAMA PLANS $290M PUBLIC OFFERING - JG
The Jakarta Globe reported that, ABM Investama, an Indonesian coal miner controlled by the Hamami family, plans to raise as much as Rp 2.6 trillion ...
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- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Central Electricity Authority - India
- Bulk Trading Sa - Switzerland
- Jaiprakash Power Ventures ltd
- TNB Fuel Sdn Bhd - Malaysia
- Billiton Holdings Pty Ltd - Australia
- Africa Commodities Group - South Africa
- International Coal Ventures Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Price Waterhouse Coopers - Russia
- Mercuria Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- India Bulls Power Limited - India
- Banpu Public Company Limited - Thailand
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Australian Commodity Traders Exchange
- Planning Commission, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- Pendopo Energi Batubara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Madhucon Powers Ltd - India
- GVK Power & Infra Limited - India
- Antam Resourcindo - Indonesia
- Rio Tinto Coal - Australia
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- ICICI Bank Limited - India
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- SMG Consultants - Indonesia
- Barasentosa Lestari - Indonesia
- Coalindo Energy - Indonesia
- Anglo American - United Kingdom
- Ministry of Transport, Egypt
- Edison Trading Spa - Italy
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Orica Australia Pty. Ltd.
- Eastern Energy - Thailand
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- Economic Council, Georgia
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- Xindia Steels Limited - India
- Orica Mining Services - Indonesia
- Altura Mining Limited, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Chamber of Mines of South Africa
- London Commodity Brokers - England
- Gujarat Electricity Regulatory Commission - India
- Eastern Coal Council - USA
- Ministry of Finance - Indonesia
- Ind-Barath Power Infra Limited - India
- Baramulti Group, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Toyota Tsusho Corporation, Japan
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Larsen & Toubro Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jindal Steel & Power Ltd - India
- Therma Luzon, Inc, Philippines
- Siam City Cement - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Bhatia International Limited - India
- Meenaskhi Energy Private Limited - India
- Tamil Nadu electricity Board
- Coal and Oil Company - UAE
- Malabar Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Indo Tambangraya Megah - Indonesia
- Sree Jayajothi Cements Limited - India
- Savvy Resources Ltd - HongKong
- PetroVietnam Power Coal Import and Supply Company
- Chettinad Cement Corporation Ltd - India
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- Borneo Indobara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Marubeni Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Globalindo Alam Lestari - Indonesia
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- Bhushan Steel Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Timah Investasi Mineral - Indoneisa
- Parliament of New Zealand
- Vedanta Resources Plc - India
- Semirara Mining Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Wood Mackenzie - Singapore
- Bhoruka Overseas - Indonesia
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Sical Logistics Limited - India
- Electricity Authority, New Zealand
- GMR Energy Limited - India
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- Agrawal Coal Company - India
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- Latin American Coal - Colombia
- Holcim Trading Pte Ltd - Singapore
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Kobexindo Tractors - Indoneisa
- Georgia Ports Authority, United States
- Minerals Council of Australia
- Salva Resources Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sakthi Sugars Limited - India
- Samtan Co., Ltd - South Korea
- Directorate Of Revenue Intelligence - India
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Gujarat Sidhee Cement - India
- Dalmia Cement Bharat India
- Simpson Spence & Young - Indonesia
- Attock Cement Pakistan Limited
- The State Trading Corporation of India Ltd
- Indian Energy Exchange, India
- PowerSource Philippines DevCo
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- Bangladesh Power Developement Board
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Posco Energy - South Korea
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- VISA Power Limited - India
- ASAPP Information Group - India
- Medco Energi Mining Internasional
- OPG Power Generation Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- South Luzon Thermal Energy Corporation
- Carbofer General Trading SA - India
- Central Java Power - Indonesia
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Formosa Plastics Group - Taiwan
- Lanco Infratech Ltd - India
- Aboitiz Power Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Mercator Lines Limited - India
- White Energy Company Limited
- Independent Power Producers Association of India
- Krishnapatnam Port Company Ltd. - India
- Trasteel International SA, Italy
- The Treasury - Australian Government
- Ambuja Cements Ltd - India
- Indian Oil Corporation Limited
- Australian Coal Association
- Kideco Jaya Agung - Indonesia
- Wilmar Investment Holdings
- Mintek Dendrill Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sarangani Energy Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Uttam Galva Steels Limited - India
- San Jose City I Power Corp, Philippines
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