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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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Tuesday, 23 March 21
LOWER WHOLESALE PRICES PUT PRESSURE ON AUSTRALIAN ENERGY RETAILERS - FITCH RATINGS
Fitch Ratings expects the low wholesale energy prices in the Australian National Energy Market to persist through to 2022, which will affect electr ...
Tuesday, 23 March 21
SCRUBBER-FITTED SHIPS NEARLY DOUBLE AS FUEL SPREAD SETTLES AT $118 PER MT - PETER SAND
As the lion’s share of the world fleet replaced high-sulphur fuel oil (HSFO) with low-sulphur fuel oil (LFSO) as a mean of propulsion to be c ...
Tuesday, 23 March 21
CHINA'S COAL OUTPUT EDGES UP IN FIRST TWO MONTHS - XINHUA
China’s raw coal output rose 25 percent year on year to 620 million tonnes in the first two months of 2021, official data showed.
...
Wednesday, 17 March 21
MARKET INSIGHT - INTERMODAL
Shipping market players are familiar with the inverse correlation between the freight market and demolition activity i.e. when the market picks up ...
Friday, 12 March 21
INDIA SHOULD FOCUS ON REDUCING COAL POWER GENERATION INSTEAD OF CAPACITY - IEEFA
Nearly half of existing coal power in India is more expensive than new renewable power
To get to its ambitious climate targets, Indi ...
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- Karbindo Abesyapradhi - Indoneisa
- Salva Resources Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Therma Luzon, Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Bukit Baiduri Energy - Indonesia
- Siam City Cement PLC, Thailand
- Jaiprakash Power Ventures ltd
- Thai Mozambique Logistica
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Meenaskhi Energy Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- SMC Global Power, Philippines
- Bukit Makmur.PT - Indonesia
- Aditya Birla Group - India
- Mjunction Services Limited - India
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Xindia Steels Limited - India
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Oldendorff Carriers - Singapore
- Miang Besar Coal Terminal - Indonesia
- Minerals Council of Australia
- Chettinad Cement Corporation Ltd - India
- Tamil Nadu electricity Board
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Ministry of Transport, Egypt
- Timah Investasi Mineral - Indoneisa
- Mintek Dendrill Indonesia
- Banpu Public Company Limited - Thailand
- Essar Steel Hazira Ltd - India
- Singapore Mercantile Exchange
- SN Aboitiz Power Inc, Philippines
- New Zealand Coal & Carbon
- Eastern Energy - Thailand
- Cement Manufacturers Association - India
- Asmin Koalindo Tuhup - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- The University of Queensland
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Renaissance Capital - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Metalloyd Limited - United Kingdom
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Bangladesh Power Developement Board
- Tata Chemicals Ltd - India
- CIMB Investment Bank - Malaysia
- Ministry of Mines - Canada
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Samtan Co., Ltd - South Korea
- Ceylon Electricity Board - Sri Lanka
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Simpson Spence & Young - Indonesia
- Orica Australia Pty. Ltd.
- ICICI Bank Limited - India
- Makarim & Taira - Indonesia
- White Energy Company Limited
- Barasentosa Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Standard Chartered Bank - UAE
- ASAPP Information Group - India
- Trasteel International SA, Italy
- Bhatia International Limited - India
- The Treasury - Australian Government
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Energy Link Ltd, New Zealand
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- Indian Oil Corporation Limited
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Deloitte Consulting - India
- Africa Commodities Group - South Africa
- Bayan Resources Tbk. - Indonesia
- European Bulk Services B.V. - Netherlands
- Power Finance Corporation Ltd., India
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- TNB Fuel Sdn Bhd - Malaysia
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Interocean Group of Companies - India
- Energy Development Corp, Philippines
- Grasim Industreis Ltd - India
- Riau Bara Harum - Indonesia
- Meralco Power Generation, Philippines
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Mercator Lines Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Australian Commodity Traders Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Coastal Gujarat Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Commonwealth Bank - Australia
- International Coal Ventures Pvt Ltd - India
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- Sical Logistics Limited - India
- Bulk Trading Sa - Switzerland
- Vizag Seaport Private Limited - India
- Bharathi Cement Corporation - India
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Maheswari Brothers Coal Limited - India
- GMR Energy Limited - India
- Uttam Galva Steels Limited - India
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Medco Energi Mining Internasional
- GAC Shipping (India) Pvt Ltd
- Indika Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Krishnapatnam Port Company Ltd. - India
- Aboitiz Power Corporation - Philippines
- Baramulti Group, Indonesia
- Wilmar Investment Holdings
- Price Waterhouse Coopers - Russia
- Ministry of Finance - Indonesia
- Rio Tinto Coal - Australia
- Gujarat Sidhee Cement - India
- Dalmia Cement Bharat India
- PetroVietnam Power Coal Import and Supply Company
- Posco Energy - South Korea
- GVK Power & Infra Limited - India
- Thiess Contractors Indonesia
- Binh Thuan Hamico - Vietnam
- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
- Economic Council, Georgia
- Lanco Infratech Ltd - India
- India Bulls Power Limited - India
- Indogreen Group - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Borneo Indobara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coalindo Energy - Indonesia
- CNBM International Corporation - China
- Marubeni Corporation - India
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Indian Energy Exchange, India
- MS Steel International - UAE
- Global Coal Blending Company Limited - Australia
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- The State Trading Corporation of India Ltd
- Coal and Oil Company - UAE
- Eastern Coal Council - USA
- VISA Power Limited - India
- San Jose City I Power Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Carbofer General Trading SA - India
- Sarangani Energy Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- Malabar Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Ambuja Cements Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Australian Coal Association
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
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