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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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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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- Indo Tambangraya Megah - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Iligan Light & Power Inc, Philippines
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Goldman Sachs - Singapore
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Baramulti Group, Indonesia
- Energy Link Ltd, New Zealand
- Tata Chemicals Ltd - India
- Coalindo Energy - Indonesia
- Siam City Cement PLC, Thailand
- Semirara Mining Corp, Philippines
- Orica Mining Services - Indonesia
- Thiess Contractors Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- Commonwealth Bank - Australia
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Mines - Canada
- Heidelberg Cement - Germany
- Vizag Seaport Private Limited - India
- Posco Energy - South Korea
- Sinarmas Energy and Mining - Indonesia
- Siam City Cement - Thailand
- New Zealand Coal & Carbon
- Latin American Coal - Colombia
- Global Business Power Corporation, Philippines
- Thai Mozambique Logistica
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Romanian Commodities Exchange
- Aditya Birla Group - India
- Indian Energy Exchange, India
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- PowerSource Philippines DevCo
- Sarangani Energy Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Coastal Gujarat Power Limited - India
- Kobexindo Tractors - Indoneisa
- Bhushan Steel Limited - India
- Salva Resources Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Planning Commission, India
- Samtan Co., Ltd - South Korea
- India Bulls Power Limited - India
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- Wood Mackenzie - Singapore
- Essar Steel Hazira Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- London Commodity Brokers - England
- Barasentosa Lestari - Indonesia
- The University of Queensland
- TeaM Sual Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- Coal and Oil Company - UAE
- GAC Shipping (India) Pvt Ltd
- Independent Power Producers Association of India
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- White Energy Company Limited
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Sree Jayajothi Cements Limited - India
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- ASAPP Information Group - India
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Bulk Trading Sa - Switzerland
- Directorate General of MIneral and Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Riau Bara Harum - Indonesia
- Bangladesh Power Developement Board
- Borneo Indobara - Indonesia
- Mercator Lines Limited - India
- Kaltim Prima Coal - Indonesia
- GMR Energy Limited - India
- Kartika Selabumi Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Australian Commodity Traders Exchange
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- IHS Mccloskey Coal Group - USA
- TNB Fuel Sdn Bhd - Malaysia
- PNOC Exploration Corporation - Philippines
- Standard Chartered Bank - UAE
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Sakthi Sugars Limited - India
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Trasteel International SA, Italy
- Gujarat Mineral Development Corp Ltd - India
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Georgia Ports Authority, United States
- PTC India Limited - India
- Price Waterhouse Coopers - Russia
- South Luzon Thermal Energy Corporation
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- Interocean Group of Companies - India
- Mercuria Energy - Indonesia
- Cement Manufacturers Association - India
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Parliament of New Zealand
- ICICI Bank Limited - India
- Economic Council, Georgia
- Banpu Public Company Limited - Thailand
- Sojitz Corporation - Japan
- Australian Coal Association
- GN Power Mariveles Coal Plant, Philippines
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Indonesian Coal Mining Association
- Electricity Authority, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Kideco Jaya Agung - Indonesia
- International Coal Ventures Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- European Bulk Services B.V. - Netherlands
- Uttam Galva Steels Limited - India
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Mintek Dendrill Indonesia
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- IEA Clean Coal Centre - UK
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meenaskhi Energy Private Limited - India
- Attock Cement Pakistan Limited
- Rashtriya Ispat Nigam Limited - India
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- Therma Luzon, Inc, Philippines
- VISA Power Limited - India
- Antam Resourcindo - Indonesia
- Indika Energy - Indonesia
- Tamil Nadu electricity Board
- Kohat Cement Company Ltd. - Pakistan
- Altura Mining Limited, Indonesia
- Aboitiz Power Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Parry Sugars Refinery, India
- Intertek Mineral Services - Indonesia
- The Treasury - Australian Government
- Bhoruka Overseas - Indonesia
- Kumho Petrochemical, South Korea
- Anglo American - United Kingdom
- Krishnapatnam Port Company Ltd. - India
- Indogreen Group - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- OPG Power Generation Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Mjunction Services Limited - India
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- Energy Development Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Bukit Makmur.PT - Indonesia
- Savvy Resources Ltd - HongKong
- Renaissance Capital - South Africa
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Jorong Barutama Greston.PT - Indonesia
- Minerals Council of Australia
- Videocon Industries ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Orica Australia Pty. Ltd.
- The State Trading Corporation of India Ltd
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