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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, 27 February 21
FITCH RATINGS REVISES GLOBAL METALS AND MINING PRICE ASSUMPTIONS
Fitch Ratings has revised some of its metals and mining price assumptions as prices for many commodities will benefit in the short term from return ...
Saturday, 27 February 21
MITSUBISHI PULLS OUT OF VINH TAN 3 COAL PROJECT IN VIETNAM - NIKKEI ASIA
Japanese trading house Mitsubishi Corp. decided Thursday to withdraw from the Vinh Tan 3 coal-fired power plant project in Vietnam amid growing int ...
Thursday, 25 February 21
ARE WE ON THE CUSP OF ANOTHER MINING SUPER-CYCLE? - WOOD MACKENZIE
As the first wave of the coronavirus pandemic began to bite, many observers confidently predicted that the end was nigh for global economic activit ...
Thursday, 25 February 21
2020 PROVED TO BE A TRULY TERRIBLE YEAR FOR SEABORNE COAL TRADE - BANCHERO COSTA
Total loadings in the 12 months of 2020 were down -12.7% year-on-year to 1,130 million tonnes, according to vessels tracking data from Refinitiv, s ...
Wednesday, 24 February 21
MARKET INSIGHT - INTERMODAL
With yields of up to 563%, the shares of Greek shipping companies listed on Wall Street are recorded. The Coronavirus pandemic has not significantl ...
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- Intertek Mineral Services - Indonesia
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Sarangani Energy Corporation, Philippines
- Altura Mining Limited, Indonesia
- Electricity Generating Authority of Thailand
- Miang Besar Coal Terminal - Indonesia
- Wilmar Investment Holdings
- Goldman Sachs - Singapore
- Attock Cement Pakistan Limited
- Bulk Trading Sa - Switzerland
- Petrochimia International Co. Ltd.- Taiwan
- Kideco Jaya Agung - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Price Waterhouse Coopers - Russia
- Cigading International Bulk Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Rio Tinto Coal - Australia
- SN Aboitiz Power Inc, Philippines
- GMR Energy Limited - India
- Romanian Commodities Exchange
- Electricity Authority, New Zealand
- South Luzon Thermal Energy Corporation
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- Independent Power Producers Association of India
- Global Business Power Corporation, Philippines
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Planning Commission, India
- Latin American Coal - Colombia
- Grasim Industreis Ltd - India
- Eastern Energy - Thailand
- Medco Energi Mining Internasional
- Directorate General of MIneral and Coal - Indonesia
- Meralco Power Generation, Philippines
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- Manunggal Multi Energi - Indonesia
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- Coastal Gujarat Power Limited - India
- Ministry of Mines - Canada
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- Coalindo Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercuria Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Videocon Industries ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Finance - Indonesia
- Bangladesh Power Developement Board
- PTC India Limited - India
- Malabar Cements Ltd - India
- Georgia Ports Authority, United States
- Globalindo Alam Lestari - Indonesia
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Wood Mackenzie - Singapore
- PowerSource Philippines DevCo
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Cement Manufacturers Association - India
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- The Treasury - Australian Government
- Banpu Public Company Limited - Thailand
- Billiton Holdings Pty Ltd - Australia
- Indian Energy Exchange, India
- Neyveli Lignite Corporation Ltd, - India
- Merrill Lynch Commodities Europe
- Jindal Steel & Power Ltd - India
- Savvy Resources Ltd - HongKong
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Australian Coal Association
- Africa Commodities Group - South Africa
- Aboitiz Power Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Mintek Dendrill Indonesia
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Sree Jayajothi Cements Limited - India
- Meenaskhi Energy Private Limited - India
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- Agrawal Coal Company - India
- Energy Development Corp, Philippines
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
- San Jose City I Power Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Baramulti Group, Indonesia
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- Orica Australia Pty. Ltd.
- Indo Tambangraya Megah - Indonesia
- Parry Sugars Refinery, India
- Central Electricity Authority - India
- Global Coal Blending Company Limited - Australia
- AsiaOL BioFuels Corp., Philippines
- Essar Steel Hazira Ltd - India
- Parliament of New Zealand
- LBH Netherlands Bv - Netherlands
- Central Java Power - Indonesia
- Chamber of Mines of South Africa
- Directorate Of Revenue Intelligence - India
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Therma Luzon, Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indonesian Coal Mining Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Kapuas Tunggal Persada - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- GN Power Mariveles Coal Plant, Philippines
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Bharathi Cement Corporation - India
- ASAPP Information Group - India
- SMG Consultants - Indonesia
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Larsen & Toubro Limited - India
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Bahari Cakrawala Sebuku - Indonesia
- IHS Mccloskey Coal Group - USA
- White Energy Company Limited
- Bhoruka Overseas - Indonesia
- Kepco SPC Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Bhatia International Limited - India
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- ICICI Bank Limited - India
- European Bulk Services B.V. - Netherlands
- The University of Queensland
- VISA Power Limited - India
- India Bulls Power Limited - India
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- MS Steel International - UAE
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- McConnell Dowell - Australia
- Chettinad Cement Corporation Ltd - India
- CIMB Investment Bank - Malaysia
- Ministry of Transport, Egypt
- Economic Council, Georgia
- Power Finance Corporation Ltd., India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Formosa Plastics Group - Taiwan
- Carbofer General Trading SA - India
- Metalloyd Limited - United Kingdom
- Star Paper Mills Limited - India
- Makarim & Taira - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Siam City Cement PLC, Thailand
- GAC Shipping (India) Pvt Ltd
- Mercator Lines Limited - India
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Antam Resourcindo - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
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