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