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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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Saturday, 06 March 21
AUSTRALIAN COAL: SOME WEAKNESS COULD MATERIALIZE AFTER THE WINTER - ING
Newcastle coal prices remain well supported for now, however as we move out of the winter months we would expect prices to come under pressure. Mea ...
Saturday, 06 March 21
ASIA SEABORNE COAL PRICES START TO RETREAT, CHINA-AUSTRALIA DISPUTE LINGERS - REUTERS
There are signs that the price and demand surge for coal during the recent colder-than-expected winter across North Asia is starting to ease, even ...
Thursday, 04 March 21
HEAD OF JBIC SAYS THE JAPANESE BANK WILL NOT FUND NEW COAL PLANT DEVELOPMENT - NHK NEWS
The governor of the Japan Bank for International Cooperation has said that the government-owned financial institution will stop funding new coal-fi ...
Wednesday, 03 March 21
MARKET INSIGHT - INTERMODAL
Following the recent rally to multi year highs of metal-based commodities, amid an unprecedented global economic stimulus, discussions of an emergi ...
Saturday, 27 February 21
CHINA'S BENCHMARK POWER COAL PRICE EDGES DOWN - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
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- Heidelberg Cement - Germany
- Siam City Cement - Thailand
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Dalmia Cement Bharat India
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- Salva Resources Pvt Ltd - India
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Latin American Coal - Colombia
- Ministry of Transport, Egypt
- Aboitiz Power Corporation - Philippines
- Central Electricity Authority - India
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Petron Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Indian Oil Corporation Limited
- Eastern Coal Council - USA
- Jindal Steel & Power Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Mjunction Services Limited - India
- Formosa Plastics Group - Taiwan
- Gujarat Mineral Development Corp Ltd - India
- Cigading International Bulk Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- Deloitte Consulting - India
- Sakthi Sugars Limited - India
- Energy Link Ltd, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- Port Waratah Coal Services - Australia
- Sinarmas Energy and Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bharathi Cement Corporation - India
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Mercuria Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Chamber of Mines of South Africa
- Ambuja Cements Ltd - India
- Ministry of Finance - Indonesia
- Oldendorff Carriers - Singapore
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- Parry Sugars Refinery, India
- CIMB Investment Bank - Malaysia
- Grasim Industreis Ltd - India
- Banpu Public Company Limited - Thailand
- Krishnapatnam Port Company Ltd. - India
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- ASAPP Information Group - India
- ICICI Bank Limited - India
- European Bulk Services B.V. - Netherlands
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Vizag Seaport Private Limited - India
- Orica Australia Pty. Ltd.
- London Commodity Brokers - England
- The University of Queensland
- Eastern Energy - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Coal and Oil Company - UAE
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Australian Coal Association
- Wood Mackenzie - Singapore
- Interocean Group of Companies - India
- Indika Energy - Indonesia
- Commonwealth Bank - Australia
- Xindia Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
- Bangladesh Power Developement Board
- Planning Commission, India
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Thiess Contractors Indonesia
- Renaissance Capital - South Africa
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Orica Mining Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- Lanco Infratech Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Kepco SPC Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- The State Trading Corporation of India Ltd
- Electricity Authority, New Zealand
- Borneo Indobara - Indonesia
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- Siam City Cement PLC, Thailand
- GN Power Mariveles Coal Plant, Philippines
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tata Chemicals Ltd - India
- International Coal Ventures Pvt Ltd - India
- Rio Tinto Coal - Australia
- Maheswari Brothers Coal Limited - India
- SN Aboitiz Power Inc, Philippines
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- SMC Global Power, Philippines
- Bhatia International Limited - India
- Antam Resourcindo - Indonesia
- Sarangani Energy Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Romanian Commodities Exchange
- Neyveli Lignite Corporation Ltd, - India
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- Georgia Ports Authority, United States
- Bukit Makmur.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Power Finance Corporation Ltd., India
- Binh Thuan Hamico - Vietnam
- Miang Besar Coal Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- Carbofer General Trading SA - India
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- Bhushan Steel Limited - India
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Attock Cement Pakistan Limited
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Gujarat Sidhee Cement - India
- Mercator Lines Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- Videocon Industries ltd - India
- Metalloyd Limited - United Kingdom
- Directorate Of Revenue Intelligence - India
- Bahari Cakrawala Sebuku - Indonesia
- Riau Bara Harum - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indian Energy Exchange, India
- PetroVietnam Power Coal Import and Supply Company
- Sindya Power Generating Company Private Ltd
- Kaltim Prima Coal - Indonesia
- Parliament of New Zealand
- Kartika Selabumi Mining - Indonesia
- San Jose City I Power Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Global Coal Blending Company Limited - Australia
- Tamil Nadu electricity Board
- TNB Fuel Sdn Bhd - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- Kalimantan Lumbung Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Price Waterhouse Coopers - Russia
- MS Steel International - UAE
- Altura Mining Limited, Indonesia
- Merrill Lynch Commodities Europe
- Sojitz Corporation - Japan
- Baramulti Group, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Larsen & Toubro Limited - India
- Essar Steel Hazira Ltd - India
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Economic Council, Georgia
- Cement Manufacturers Association - India
- Karaikal Port Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Vedanta Resources Plc - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Holcim Trading Pte Ltd - Singapore
- Malabar Cements Ltd - India
- Madhucon Powers Ltd - India
- LBH Netherlands Bv - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Mintek Dendrill Indonesia
- White Energy Company Limited
- TeaM Sual Corporation - Philippines
- Meralco Power Generation, Philippines
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