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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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Monday, 08 January 24
KOSPO TO BUY 80000 MT OF INDONESIAN LOW CALORIFIC VALUE COAL FOR FEB 2024
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for the supply of Indonesian Low Calorific Value Coal from qualified suppliers for Korean ...
Monday, 08 January 24
SEABORNE TRADE REACHES 12.4BN TONNES - CLARKSONS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
Monday, 08 January 24
CAPESIZES START THE NEW YEAR ON POSITIVE NOTE - BALTIC EXCHANGE
Capesize
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Friday, 05 January 24
MORGAN STANLEY SEES LOWER OIL PRICES IN 2024 ON OVERSUPPLY CONCERNS - REUTERS
Morgan Stanley sees Brent crude prices anchored near $80 per barrel in the first half in 2024 before declining towards the end of the year as it ex ...
Friday, 05 January 24
INDIA'S COAL OUTPUT RISES NEARLY 11 PC IN DEC TO 92.87 MT - PTI
India’s coal production increased by 10.75 per cent to 92.87 million tonne in December 2023 as compared to the year-ago period, an official s ...
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- Indonesian Coal Mining Association
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- PNOC Exploration Corporation - Philippines
- Economic Council, Georgia
- Krishnapatnam Port Company Ltd. - India
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- GAC Shipping (India) Pvt Ltd
- Videocon Industries ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- Trasteel International SA, Italy
- ASAPP Information Group - India
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Samtan Co., Ltd - South Korea
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Ambuja Cements Ltd - India
- GVK Power & Infra Limited - India
- VISA Power Limited - India
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Siam City Cement PLC, Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Commonwealth Bank - Australia
- Binh Thuan Hamico - Vietnam
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Riau Bara Harum - Indonesia
- Planning Commission, India
- GN Power Mariveles Coal Plant, Philippines
- Orica Australia Pty. Ltd.
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Bhatia International Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Star Paper Mills Limited - India
- Romanian Commodities Exchange
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- Africa Commodities Group - South Africa
- Port Waratah Coal Services - Australia
- Indogreen Group - Indonesia
- South Luzon Thermal Energy Corporation
- Neyveli Lignite Corporation Ltd, - India
- Lanco Infratech Ltd - India
- Kideco Jaya Agung - Indonesia
- Australian Commodity Traders Exchange
- Electricity Authority, New Zealand
- CIMB Investment Bank - Malaysia
- London Commodity Brokers - England
- Chamber of Mines of South Africa
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Jaiprakash Power Ventures ltd
- Electricity Generating Authority of Thailand
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Kepco SPC Power Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Mercator Lines Limited - India
- Vedanta Resources Plc - India
- Energy Link Ltd, New Zealand
- Global Business Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Renaissance Capital - South Africa
- Tamil Nadu electricity Board
- Merrill Lynch Commodities Europe
- Minerals Council of Australia
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- San Jose City I Power Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Bayan Resources Tbk. - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Petrochimia International Co. Ltd.- Taiwan
- LBH Netherlands Bv - Netherlands
- Coal and Oil Company - UAE
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Bhoruka Overseas - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Jorong Barutama Greston.PT - Indonesia
- Central Electricity Authority - India
- IEA Clean Coal Centre - UK
- Barasentosa Lestari - Indonesia
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Edison Trading Spa - Italy
- Pendopo Energi Batubara - Indonesia
- Gujarat Sidhee Cement - India
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- PTC India Limited - India
- Georgia Ports Authority, United States
- Thai Mozambique Logistica
- Directorate General of MIneral and Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Attock Cement Pakistan Limited
- The State Trading Corporation of India Ltd
- Bulk Trading Sa - Switzerland
- Mjunction Services Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Rio Tinto Coal - Australia
- Oldendorff Carriers - Singapore
- Coalindo Energy - Indonesia
- Formosa Plastics Group - Taiwan
- White Energy Company Limited
- India Bulls Power Limited - India
- CNBM International Corporation - China
- Billiton Holdings Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Australian Coal Association
- Xindia Steels Limited - India
- Sical Logistics Limited - India
- Toyota Tsusho Corporation, Japan
- Metalloyd Limited - United Kingdom
- Ministry of Mines - Canada
- The University of Queensland
- Aboitiz Power Corporation - Philippines
- Power Finance Corporation Ltd., India
- Central Java Power - Indonesia
- Baramulti Group, Indonesia
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Kaltim Prima Coal - Indonesia
- Heidelberg Cement - Germany
- Ministry of Transport, Egypt
- Energy Development Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- PowerSource Philippines DevCo
- Grasim Industreis Ltd - India
- Agrawal Coal Company - India
- Meralco Power Generation, Philippines
- Aditya Birla Group - India
- Therma Luzon, Inc, Philippines
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Sakthi Sugars Limited - India
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- Larsen & Toubro Limited - India
- Wilmar Investment Holdings
- ICICI Bank Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Bhushan Steel Limited - India
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Deloitte Consulting - India
- Mercuria Energy - Indonesia
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Alfred C Toepfer International GmbH - Germany
- Petron Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Sojitz Corporation - Japan
- Holcim Trading Pte Ltd - Singapore
- Altura Mining Limited, Indonesia
- Uttam Galva Steels Limited - India
- Thiess Contractors Indonesia
- Ceylon Electricity Board - Sri Lanka
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- Indian Oil Corporation Limited
- Borneo Indobara - Indonesia
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