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Thursday, 25 March 21
'OMNIBUS LAW' REGULATION ON INDONESIA’S ENERGY AND MINING SECTORS TO BOOST COAL PROCESSING BUT ALSO RAISES QUESTIONS - ABNR
 February 2021 saw the issuance of a raft of new government regulations to give effect to the reformist Job Creation Law (colloquially known as the Omnibus Law), which entered into force on 2 November 2020. In this ABNR legal update, we discuss Government Regulation No. 25 of 2021 on the Energy and Mineral Sectors.
The government has issued a new regulation to give effect to the provisions of the Omnibus Law[1] relating to the mineral, coal, geothermal and power sectors. While the regulation makes some important changes, the overall purpose appears to be primarily to codify existing secondary legislation governing the relevant sectors.
The new instrument, Government Regulation No. 25 of 2021 on the Energy and Mineral Sectors (the “Regulation”),[2] was issued on 2 February 2021.
Due to the wide-ranging scope of the Regulation, we confine our analysis to its key provisions in this ABNR Legal Update.
A. Mining sector
Under the Omnibus Law, the holder of a Production-Operations Mining Business License (“IUP”) or Special Production-Operations Mining Business License (“IUPK”) for coal may be entitled to a complete exemption from the payment of royalties if it processes its coal production domestically, compared to an obligation to pay royalties of 3% to 7% (depending of calorific value and mining method) if it does not process its production domestically. This incentive should help boost investment in the coal processing industry (e.g., coal slurry, coal gasification and coal liquefaction), which is currently less developed than the mineral processing and refining industry.
The Regulation provides that the financial incentive will be given after approval by the Minister of Finance. Although not expressly stated, we believe the Minister of Finance will require a recommendation from the Minister of Energy and Mineral Resources (“MEMR”) before giving such approval as the Regulation stipulates the former should take into account considerations relating to energy sustainability and the fulfillment of industrial needs for raw materials, both of which come within the purview of the MEMR.
The financial incentives are not available for all coal that is produced by a mining license holder but only for certain types of coal that are processed domestically.
B. Geothermal Sector
The Regulation makes provision for the imposition of administrative sanctions and penalties on geothermal businesses that: (i) indirectly use geothermal energy without the required license or in a way that contravenes their license; (ii) fail to commence activities in their allocated work area within the stipulated timeframe; or (iii) fail to comply with the obligations set out in their license or the laws and regulations in general. By contrast, the Geothermal Law only imposes criminal sanctions for non-compliance with licenses.
It is prohibited for a holder of a geothermal license to assign it to a third party. Any violation of this prohibition is subject to administrative sanctions. Further, it is prohibited, once again subject to sanctions, for the holder of a geothermal license to sell its shares on the Indonesia Stock Exchange (“IDX”) without MEMR approval prior to the exploration stage.
While the text of the Regulation in this regard appears to only apply to a geothermal company that is itself listed on the IDX, and not to the holding company of a geothermal company listed on the IDX, it is as yet unclear whether this particular provision will be construed narrowly so as to exclude a holding company or widely so as to include it. The Regulation also fails to explain how the prohibition will be implemented and, more specifically, whether the IDX will be required to monitor transfers of shares of IPB holders so as to ensure that the prohibition is not violated.
C. Power Sector
The Omnibus Law has relaxed the rules in a number of key areas of the power sector, including the rules on operations areas, electricity-sector support services and joint utilization of electricity networks. However, it also imposes new obligations on electricity consumers. These changes have now been further fleshed out in the Regulation.
Under the Regulation, the term “public interest electricity business” covers (i) electricity generation; (ii) electricity transmission; (iii) electricity distribution; and (iv) sale of electricity. These various activities can be integrated and conducted by a single undertaking. For that purpose, the holder of Public Interest Electricity Business License (Izin Usaha Penyedian Tenaga Listrik Untuk Kepentingan Umum) must apply for the allocation of an Operations Area, particularly for the distribution and sale of electricity. The Regulation further stipulates that MEMR must consider the following aspects in determining the allocation of Operations Areas:
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The existing holder of an Operations Area is no longer capable of supplying electricity;
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The existing holder of Operations Area is no longer capable of maintaining the quality and reliability of its electricity supply;
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The existing holder of an Operations Area surrenders a part or all of its Operations Area to MEMR;
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The Operations Area applied for is a remote area that has not been assigned to another Operations Area holder; and/or
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The Operations Area applied for is a designated area for the development of integrated energy sources in accordance with its power needs.
While in practice we expect that PT PLN (Persero), the state power company and largest player in the Indonesian power sector, will continue to dominate the development of new or existing Operations Areas, the considerations listed above could still open opportunities for private investors to proactively seek out prospective Operations Areas for development.
The Regulation also establishes the following licensing and reporting requirements for own-interest power producers (i.e., operators of captive power plants):
> 500 kW – requires an Own-Interest Electricity Business License (Izin Usaha Penyediaan Tenaga Listrik untuk Kepentingan Sendiri) from MEMR or relevant provincial governor, plus a certificate of operational worthiness.
< 500kW - must submit a prior written report to the Minister or relevant governor and satisfy technical specifications, as evidenced by a certificate of operational worthiness and other technical documents to be registered with MEMR.
It interesting to note that the Regulation also imposes various new obligations on electricity consumers, Including obligations to ensure the security of their electricity installations, to use electricity in accordance with its purposes, to pay their electricity bills and to comply with technical requirements in the power sector. A consumer may be sued for any losses suffered by the holder of a Public Interest Electricity Business License if they fail to perform their obligations. This provision may also be regarded as setting out the minimum provisions that should be incorporated in an electricity purchase agreement between a power provider and its customers, including industrial customers.
As regards the electricity support services sector (“Support Services”), a foreign investor that wishes to carry on business in this field has the option of establishing a representative office / Kantor Perwakilan Asing (“KPA”). The Support Services that can be performed by a KPA are restricted to a list of clearly defined activities, including consultation on electricity installations, construction and installation of electricity infrastructure, and the maintenance of power installations. The projects developed by a KPA must also come within the “high cost” category, with a minimum contract value of Rp 100 billion for construction and installation activities.
It should be noted in this regard that the Regulation is somewhat unclear. While it goes into noticeable detail on the rules governing KPA, it is silent as to the role to be played by foreign invested companies (PT PMA) in the electricity support services sector.
As mandated by the Omnibus Law, the Regulation further provides for the joint utilization of power transmission networks by telecommunication, multimedia and IT companies. Such joint utilization must be based on the permission of the network owner, which may only be given if the joint utilization does not have the potential to disrupt electricity supplies. The network owner must submit a report to MEMR on its consent to joint utilization, enclosing certain supporting documents, including the joint utilization agreement and details of the telecommunications equipment to be installed in the power transmission network.
ABNR Commentary
Despite the lack of clarity and question marks regarding some provisions, as mentioned above, the Regulation fills in some obvious gaps in the Omnibus Law relating to the mineral, coal and power sectors. However, there remain a number of outstanding issues that require attention. In this regard, the Regulation incorporates an enabling provision that allows MEMR to take whatever action is required to resolve any issues that are not, or are inadequately, addressed in the Regulation. This is a new type of catch-all “fix-it-up” provision in Indonesian law that is also used in a number of other sectoral regulations issued under the Omnibus Law. It will be interesting to see the extent to which the MEMR, as well as other ministries, avail of this power to make legislative and regulatory changes going ahead.
By partner Mr. Freddy Karyadi and senior associate Mr. Mahatma Hadhi
Source: ABNR
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Wednesday, 31 January 24
CHINA'S INNER MONGOLIA COAL OUTPUT HIT 1.21B TONS IN 2023 - XINHUA
North China’s Inner Mongolia autonomous region churned out 1.21 billion tons of coal in 2023 as it strives to guarantee the country’s e ...
Wednesday, 31 January 24
GAS EXPORTS COST U.S. CONSUMERS MORE THAN $100 BILLION OVER 16-MONTH PERIOD - IEEFA
Limited Demand Growth Could Dampen the Dry Bulk Market in the Coming Months BIMCOStarting in late 2021—before its invasion of Ukraine—R ...
Tuesday, 30 January 24
LIMITED DEMAND GROWTH COULD DAMPEN THE DRY BULK MARKET IN THE COMING MONTHS - BIMCO
Demand
In our base scenario, we expect cargo demand to grow by 0-1% in 2024 and 0.5-1.5% in 2025. This is a 0.5 percentage point reduction for ...
Friday, 26 January 24
RED SEA DIVERSIONS ADD NEARLY A MILLION DOLLARS PER VOYAGE TO SHIPPING COSTS WHILE DOUBLING TRANSIT TIME - LSEG
The incremental costs of diverting a tanker from Asia to NW Europe via the Cape of Good Hope is accounting for an extra $932,905 USD per voyage whi ...
Friday, 26 January 24
HARD COAL GUARDIAN ANGEL OF THE ENERGY SUPPLY - GERMANY COAL IMPORTERS ASSOCIATION
- No security of supply without hard coal
- The Substitute Power Plant Provision Act (EKBG) must be extended
- Higher grid fees due to the ...
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- Siam City Cement - Thailand
- Parry Sugars Refinery, India
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Straits Asia Resources Limited - Singapore
- European Bulk Services B.V. - Netherlands
- Malabar Cements Ltd - India
- Baramulti Group, Indonesia
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- Alfred C Toepfer International GmbH - Germany
- Sakthi Sugars Limited - India
- Ceylon Electricity Board - Sri Lanka
- Miang Besar Coal Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- White Energy Company Limited
- IEA Clean Coal Centre - UK
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- Mjunction Services Limited - India
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Planning Commission, India
- Attock Cement Pakistan Limited
- Altura Mining Limited, Indonesia
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Mercuria Energy - Indonesia
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Global Green Power PLC Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sojitz Corporation - Japan
- Binh Thuan Hamico - Vietnam
- VISA Power Limited - India
- Madhucon Powers Ltd - India
- Posco Energy - South Korea
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- McConnell Dowell - Australia
- Rio Tinto Coal - Australia
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Kepco SPC Power Corporation, Philippines
- Anglo American - United Kingdom
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Bhushan Steel Limited - India
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Central Electricity Authority - India
- Borneo Indobara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- The University of Queensland
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- Indonesian Coal Mining Association
- AsiaOL BioFuels Corp., Philippines
- Salva Resources Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- Latin American Coal - Colombia
- Indogreen Group - Indonesia
- Oldendorff Carriers - Singapore
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Karaikal Port Pvt Ltd - India
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- Aboitiz Power Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Carbofer General Trading SA - India
- Economic Council, Georgia
- Kideco Jaya Agung - Indonesia
- Jaiprakash Power Ventures ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Standard Chartered Bank - UAE
- Kohat Cement Company Ltd. - Pakistan
- Meralco Power Generation, Philippines
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- Semirara Mining Corp, Philippines
- Wood Mackenzie - Singapore
- Bhoruka Overseas - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Sical Logistics Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Metalloyd Limited - United Kingdom
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Australian Commodity Traders Exchange
- Uttam Galva Steels Limited - India
- Indian Energy Exchange, India
- Ind-Barath Power Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Formosa Plastics Group - Taiwan
- Riau Bara Harum - Indonesia
- Indo Tambangraya Megah - Indonesia
- Energy Link Ltd, New Zealand
- Tamil Nadu electricity Board
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Samtan Co., Ltd - South Korea
- Sinarmas Energy and Mining - Indonesia
- Siam City Cement PLC, Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- GAC Shipping (India) Pvt Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- Wilmar Investment Holdings
- Electricity Generating Authority of Thailand
- Essar Steel Hazira Ltd - India
- Global Coal Blending Company Limited - Australia
- Star Paper Mills Limited - India
- Dalmia Cement Bharat India
- Billiton Holdings Pty Ltd - Australia
- CNBM International Corporation - China
- Aditya Birla Group - India
- Medco Energi Mining Internasional
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Ministry of Finance - Indonesia
- ICICI Bank Limited - India
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- Bangladesh Power Developement Board
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- Orica Australia Pty. Ltd.
- Videocon Industries ltd - India
- London Commodity Brokers - England
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Central Java Power - Indonesia
- Kobexindo Tractors - Indoneisa
- Bulk Trading Sa - Switzerland
- Georgia Ports Authority, United States
- Ambuja Cements Ltd - India
- Antam Resourcindo - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Marubeni Corporation - India
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- Power Finance Corporation Ltd., India
- Energy Development Corp, Philippines
- Larsen & Toubro Limited - India
- Pendopo Energi Batubara - Indonesia
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Vizag Seaport Private Limited - India
- Eastern Coal Council - USA
- Price Waterhouse Coopers - Russia
- The State Trading Corporation of India Ltd
- Meenaskhi Energy Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Global Business Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maharashtra Electricity Regulatory Commission - India
- Directorate Of Revenue Intelligence - India
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- Maheswari Brothers Coal Limited - India
- Sindya Power Generating Company Private Ltd
- Deloitte Consulting - India
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Singapore Mercantile Exchange
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Therma Luzon, Inc, Philippines
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