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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, 29 March 21
MOODY'S: OUTLOOK FOR GLOBAL METALS AND MINING INDUSTRY TURNS POSITIVE ON HIGHER EBITDA IN PANDEMIC'S WAKE
- Demand for steel, iron ore and copper will rise, while aluminum, nickel and zinc will remain in surplus
- EBITDA is expected to ...
Thursday, 25 March 21
PROPOSED SWITCH FROM COAL TO LNG THREATENS RENEWABLE ENERGY DEVELOPMENT IN ASIA - IEEFA
Renewables offer an ever cheaper, financially sustainable and energy secure alternative, better able to support developing nations
A ...
Thursday, 25 March 21
MAJOR INVESTMENT ADVISORS BLACKROCK AND MEKETA PROVIDE A FIDUCIARY PATH THROUGH THE ENERGY TRANSITION - IEEFA
BlackRock and Meketa say divestment from fossil fuels improves, not weakens, investment returns
Two major financial management firms ...
Thursday, 25 March 21
EUROPE PASSES MILESTONE WITH HALF OF COAL PLANTS CLOSED OR SET TO RETIRE BY 2030 - EURACTIV
Half of Europe’s 324 coal-fueled power plants have either closed or announced a retirement date before 2030, it emerged on Monday (22 March) ...
Wednesday, 24 March 21
MARKET INSIGHT - INTERMODAL
Since the start of the pandemic, the shipping industry has efficiently responded to ensure the continuity of operations and hence the security of s ...
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- Bahari Cakrawala Sebuku - Indonesia
- Samtan Co., Ltd - South Korea
- Mercuria Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IHS Mccloskey Coal Group - USA
- Sree Jayajothi Cements Limited - India
- Karaikal Port Pvt Ltd - India
- Latin American Coal - Colombia
- Iligan Light & Power Inc, Philippines
- SMC Global Power, Philippines
- Trasteel International SA, Italy
- Leighton Contractors Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- Mercator Lines Limited - India
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- Electricity Generating Authority of Thailand
- Posco Energy - South Korea
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- The University of Queensland
- Meenaskhi Energy Private Limited - India
- Aboitiz Power Corporation - Philippines
- VISA Power Limited - India
- White Energy Company Limited
- Wood Mackenzie - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Kumho Petrochemical, South Korea
- Asmin Koalindo Tuhup - Indonesia
- Bulk Trading Sa - Switzerland
- Kideco Jaya Agung - Indonesia
- Bhoruka Overseas - Indonesia
- Australian Coal Association
- Parliament of New Zealand
- Ministry of Mines - Canada
- Standard Chartered Bank - UAE
- Bhushan Steel Limited - India
- Planning Commission, India
- Dalmia Cement Bharat India
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Ministry of Transport, Egypt
- Sical Logistics Limited - India
- Jindal Steel & Power Ltd - India
- India Bulls Power Limited - India
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Vedanta Resources Plc - India
- ICICI Bank Limited - India
- AsiaOL BioFuels Corp., Philippines
- GN Power Mariveles Coal Plant, Philippines
- CNBM International Corporation - China
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- Agrawal Coal Company - India
- Orica Australia Pty. Ltd.
- Energy Development Corp, Philippines
- GVK Power & Infra Limited - India
- The State Trading Corporation of India Ltd
- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- Billiton Holdings Pty Ltd - Australia
- LBH Netherlands Bv - Netherlands
- Orica Mining Services - Indonesia
- London Commodity Brokers - England
- Baramulti Group, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Georgia Ports Authority, United States
- Bangladesh Power Developement Board
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- Salva Resources Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- PowerSource Philippines DevCo
- Semirara Mining Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Mintek Dendrill Indonesia
- Therma Luzon, Inc, Philippines
- Independent Power Producers Association of India
- Simpson Spence & Young - Indonesia
- Lanco Infratech Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Cement Manufacturers Association - India
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Deloitte Consulting - India
- Minerals Council of Australia
- Kalimantan Lumbung Energi - Indonesia
- Heidelberg Cement - Germany
- Global Coal Blending Company Limited - Australia
- Pendopo Energi Batubara - Indonesia
- Banpu Public Company Limited - Thailand
- Renaissance Capital - South Africa
- Antam Resourcindo - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- International Coal Ventures Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indonesian Coal Mining Association
- Jorong Barutama Greston.PT - Indonesia
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- Globalindo Alam Lestari - Indonesia
- Sojitz Corporation - Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Electricity Authority, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Malabar Cements Ltd - India
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- Singapore Mercantile Exchange
- Ministry of Finance - Indonesia
- The Treasury - Australian Government
- Makarim & Taira - Indonesia
- Mjunction Services Limited - India
- Sindya Power Generating Company Private Ltd
- TeaM Sual Corporation - Philippines
- Thiess Contractors Indonesia
- Ind-Barath Power Infra Limited - India
- Bharathi Cement Corporation - India
- GMR Energy Limited - India
- South Luzon Thermal Energy Corporation
- Anglo American - United Kingdom
- ASAPP Information Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Madhucon Powers Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Barasentosa Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Kartika Selabumi Mining - Indonesia
- Wilmar Investment Holdings
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Riau Bara Harum - Indonesia
- Marubeni Corporation - India
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- PTC India Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate Of Revenue Intelligence - India
- OPG Power Generation Pvt Ltd - India
- Medco Energi Mining Internasional
- Chamber of Mines of South Africa
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- San Jose City I Power Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- Rashtriya Ispat Nigam Limited - India
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- Vizag Seaport Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Maheswari Brothers Coal Limited - India
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Altura Mining Limited, Indonesia
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- Port Waratah Coal Services - Australia
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- Coalindo Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
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