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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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Friday, 12 March 21
BATTERIES ARE REPLACING COAL NOT GAS - IEEFA
No amount of government subsidies can halt gas’s decline
Batteries are replacing coal not gas.
Today the early ...
Friday, 12 March 21
RENEWABLES SHOULD BE FOCUS OF VIETNAM’S DRAFT PDP8, NOT COAL AND GAS - IEEFA
Evidence was clear to inform the next stage of Vietnam’s power development
Vietnam’s recently published draft power deve ...
Thursday, 11 March 21
U.S. TO PRODUCE 581 MMST IN 2021, UP 8% FROM 2020 - EIA
EIA expects U.S. coal production to total 581 MMst in 2021, 42 MMst (8%) more than in 2020. In 2022, EIA expects coal production to rise by a furth ...
Thursday, 11 March 21
MARKET INSIGHT - INTERMODAL
Assessing the ship repair sector during the first months of 2021, we have come across a new era in which Owners chose the shipyards to repair their ...
Monday, 08 March 21
MARCH 2021 INDONESIA COAL PRICE REFERENCE SETTLES LOWER
COALspot.com: The Indonesia coal price reference for March 2021 settles at US$ 84.49 per ton FOB vessel.
The Indonesia coal pr ...
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- ASAPP Information Group - India
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- Intertek Mineral Services - Indonesia
- Romanian Commodities Exchange
- GVK Power & Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Altura Mining Limited, Indonesia
- Renaissance Capital - South Africa
- Coastal Gujarat Power Limited - India
- Bukit Makmur.PT - Indonesia
- Ind-Barath Power Infra Limited - India
- Binh Thuan Hamico - Vietnam
- GAC Shipping (India) Pvt Ltd
- Interocean Group of Companies - India
- Leighton Contractors Pty Ltd - Australia
- Goldman Sachs - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Port Waratah Coal Services - Australia
- PowerSource Philippines DevCo
- Karaikal Port Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Sree Jayajothi Cements Limited - India
- Billiton Holdings Pty Ltd - Australia
- Australian Coal Association
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Orica Mining Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CNBM International Corporation - China
- European Bulk Services B.V. - Netherlands
- Star Paper Mills Limited - India
- Bharathi Cement Corporation - India
- Mjunction Services Limited - India
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Parliament of New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Indian Oil Corporation Limited
- Borneo Indobara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Latin American Coal - Colombia
- Eastern Coal Council - USA
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Central Electricity Authority - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Electricity Generating Authority of Thailand
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- The University of Queensland
- Bhushan Steel Limited - India
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- Dalmia Cement Bharat India
- Georgia Ports Authority, United States
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- India Bulls Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Bangladesh Power Developement Board
- Sarangani Energy Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Global Business Power Corporation, Philippines
- Cement Manufacturers Association - India
- Global Green Power PLC Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Wilmar Investment Holdings
- Antam Resourcindo - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Global Coal Blending Company Limited - Australia
- Australian Commodity Traders Exchange
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
- Oldendorff Carriers - Singapore
- Sojitz Corporation - Japan
- Petron Corporation, Philippines
- Merrill Lynch Commodities Europe
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- Chamber of Mines of South Africa
- Kapuas Tunggal Persada - Indonesia
- Sakthi Sugars Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- McConnell Dowell - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Anglo American - United Kingdom
- Standard Chartered Bank - UAE
- Jorong Barutama Greston.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- Riau Bara Harum - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- VISA Power Limited - India
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Siam City Cement - Thailand
- South Luzon Thermal Energy Corporation
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- Kepco SPC Power Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Grasim Industreis Ltd - India
- Semirara Mining Corp, Philippines
- IHS Mccloskey Coal Group - USA
- OPG Power Generation Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Attock Cement Pakistan Limited
- Vizag Seaport Private Limited - India
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- MS Steel International - UAE
- Videocon Industries ltd - India
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Larsen & Toubro Limited - India
- Toyota Tsusho Corporation, Japan
- Iligan Light & Power Inc, Philippines
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- Singapore Mercantile Exchange
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Meralco Power Generation, Philippines
- Gujarat Sidhee Cement - India
- Agrawal Coal Company - India
- Independent Power Producers Association of India
- Orica Australia Pty. Ltd.
- Indo Tambangraya Megah - Indonesia
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- Indian Energy Exchange, India
- Sindya Power Generating Company Private Ltd
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- White Energy Company Limited
- Bayan Resources Tbk. - Indonesia
- Kaltim Prima Coal - Indonesia
- Sical Logistics Limited - India
- Posco Energy - South Korea
- Mercator Lines Limited - India
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Heidelberg Cement - Germany
- Medco Energi Mining Internasional
- Minerals Council of Australia
- Petrochimia International Co. Ltd.- Taiwan
- Pendopo Energi Batubara - Indonesia
- Salva Resources Pvt Ltd - India
- The Treasury - Australian Government
- Eastern Energy - Thailand
- Coalindo Energy - Indonesia
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- PTC India Limited - India
- Power Finance Corporation Ltd., India
- Trasteel International SA, Italy
- Ministry of Mines - Canada
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- Madhucon Powers Ltd - India
- Energy Link Ltd, New Zealand
- Gujarat Mineral Development Corp Ltd - India
- Metalloyd Limited - United Kingdom
- Banpu Public Company Limited - Thailand
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Jindal Steel & Power Ltd - India
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- Thiess Contractors Indonesia
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- Mintek Dendrill Indonesia
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Essar Steel Hazira Ltd - India
- Commonwealth Bank - Australia
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