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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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- Truba Alam Manunggal Engineering.Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sakthi Sugars Limited - India
- Chamber of Mines of South Africa
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Simpson Spence & Young - Indonesia
- Miang Besar Coal Terminal - Indonesia
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- Intertek Mineral Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Petron Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Independent Power Producers Association of India
- Gujarat Mineral Development Corp Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Tata Chemicals Ltd - India
- Oldendorff Carriers - Singapore
- Thiess Contractors Indonesia
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Sindya Power Generating Company Private Ltd
- SMG Consultants - Indonesia
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- Indogreen Group - Indonesia
- Riau Bara Harum - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Georgia Ports Authority, United States
- Carbofer General Trading SA - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Commonwealth Bank - Australia
- Gujarat Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- IHS Mccloskey Coal Group - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Heidelberg Cement - Germany
- Bulk Trading Sa - Switzerland
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Romanian Commodities Exchange
- GN Power Mariveles Coal Plant, Philippines
- Rashtriya Ispat Nigam Limited - India
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Grasim Industreis Ltd - India
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
- Medco Energi Mining Internasional
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Trasteel International SA, Italy
- Bukit Baiduri Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Ministry of Transport, Egypt
- India Bulls Power Limited - India
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- White Energy Company Limited
- MS Steel International - UAE
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Uttam Galva Steels Limited - India
- Australian Commodity Traders Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Karbindo Abesyapradhi - Indoneisa
- SMC Global Power, Philippines
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Altura Mining Limited, Indonesia
- Therma Luzon, Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Standard Chartered Bank - UAE
- Bukit Makmur.PT - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Indika Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Goldman Sachs - Singapore
- Meenaskhi Energy Private Limited - India
- Gujarat Sidhee Cement - India
- Borneo Indobara - Indonesia
- PNOC Exploration Corporation - Philippines
- IEA Clean Coal Centre - UK
- Cement Manufacturers Association - India
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Eastern Energy - Thailand
- Parliament of New Zealand
- The Treasury - Australian Government
- OPG Power Generation Pvt Ltd - India
- Coalindo Energy - Indonesia
- Bharathi Cement Corporation - India
- Bhushan Steel Limited - India
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Malabar Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- Coastal Gujarat Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Global Green Power PLC Corporation, Philippines
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- PTC India Limited - India
- Cigading International Bulk Terminal - Indonesia
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Dalmia Cement Bharat India
- Electricity Authority, New Zealand
- SN Aboitiz Power Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Orica Australia Pty. Ltd.
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- European Bulk Services B.V. - Netherlands
- Indian Oil Corporation Limited
- Indian Energy Exchange, India
- Wood Mackenzie - Singapore
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coal and Oil Company - UAE
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- Pendopo Energi Batubara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Interocean Group of Companies - India
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- Ceylon Electricity Board - Sri Lanka
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- San Jose City I Power Corp, Philippines
- ASAPP Information Group - India
- Planning Commission, India
- Mercuria Energy - Indonesia
- Siam City Cement PLC, Thailand
- GMR Energy Limited - India
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- Renaissance Capital - South Africa
- Kepco SPC Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Xindia Steels Limited - India
- PowerSource Philippines DevCo
- Manunggal Multi Energi - Indonesia
- Wilmar Investment Holdings
- Directorate Of Revenue Intelligence - India
- Savvy Resources Ltd - HongKong
- ICICI Bank Limited - India
- Kobexindo Tractors - Indoneisa
- Salva Resources Pvt Ltd - India
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