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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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Sunday, 21 February 21
ANZ DIVESTING FROM THE WORLD’S LARGEST COAL EXPORT PORT IS 'PRAGMATISM' - IEEFA
The biggest buyers of Australian thermal coal have committed to net-zero emissions
ANZ, Australia’s third largest bank, has decided to s ...
Sunday, 21 February 21
EDITORIAL: TIME FOR BANGLADESH TO FOCUS ON RENEWABLE ENERGY, NOT COAL - DHAKA TRIBUNE
Shifting away from coal is not only desirable, but absolutely necessary in these times.
In spite of being detrimental to environment ...
Wednesday, 17 February 21
STRANDED ASSETS A LONG-TERM RISK FOR MAJOR FOSSIL FUEL EXPORTERS - FITCH RATINGS
Fossil exporters face a loss of GDP, government revenue and export receipts from the transition to a lower-carbon economy over the coming decades. ...
Friday, 12 February 21
U.S: WIND SURPASSED COAL AS NO. 1 FUEL SOURCE IN 2020 FOR SOUTHWEST POWER POOL - IEEFA
Wind energy growth due to geography, design factors, and new installations
Wind surpassed coal as the primary power generation sourc ...
Wednesday, 10 February 21
FY21 COAL DEMAND MAY BE LOWER THAN PREVIOUSLY ESTIMATED DUE TO COVID-19: PRALHAD JOSHI - PTI
Coal demand in the current fiscal may be lower than the initial estimate of 1,085 million tonnes (MT) due to the impact of COVID-19, Parliament was ...
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- Rashtriya Ispat Nigam Limited - India
- Vizag Seaport Private Limited - India
- European Bulk Services B.V. - Netherlands
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- Toyota Tsusho Corporation, Japan
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Thiess Contractors Indonesia
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- Latin American Coal - Colombia
- Altura Mining Limited, Indonesia
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- PowerSource Philippines DevCo
- Ceylon Electricity Board - Sri Lanka
- White Energy Company Limited
- Australian Coal Association
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- Cigading International Bulk Terminal - Indonesia
- Rio Tinto Coal - Australia
- CNBM International Corporation - China
- Karaikal Port Pvt Ltd - India
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- McConnell Dowell - Australia
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- GMR Energy Limited - India
- Riau Bara Harum - Indonesia
- Kaltim Prima Coal - Indonesia
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining Corp, Philippines
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Xindia Steels Limited - India
- Sojitz Corporation - Japan
- CIMB Investment Bank - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Bulk Trading Sa - Switzerland
- Planning Commission, India
- Videocon Industries ltd - India
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- TeaM Sual Corporation - Philippines
- Ministry of Finance - Indonesia
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
- Jorong Barutama Greston.PT - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Coal Council - USA
- Medco Energi Mining Internasional
- AsiaOL BioFuels Corp., Philippines
- Lanco Infratech Ltd - India
- Orica Australia Pty. Ltd.
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- India Bulls Power Limited - India
- Goldman Sachs - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- Eastern Energy - Thailand
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- Coal and Oil Company - UAE
- Jaiprakash Power Ventures ltd
- Uttam Galva Steels Limited - India
- Wood Mackenzie - Singapore
- MS Steel International - UAE
- Directorate Of Revenue Intelligence - India
- The Treasury - Australian Government
- Parliament of New Zealand
- Mintek Dendrill Indonesia
- Coalindo Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- ASAPP Information Group - India
- Coastal Gujarat Power Limited - India
- Ambuja Cements Ltd - India
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Vedanta Resources Plc - India
- Sical Logistics Limited - India
- Metalloyd Limited - United Kingdom
- PTC India Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Independent Power Producers Association of India
- Singapore Mercantile Exchange
- Thai Mozambique Logistica
- SMG Consultants - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- Anglo American - United Kingdom
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Siam City Cement - Thailand
- Indogreen Group - Indonesia
- Bukit Makmur.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kepco SPC Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Pendopo Energi Batubara - Indonesia
- Meralco Power Generation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Krishnapatnam Port Company Ltd. - India
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- Attock Cement Pakistan Limited
- Bhoruka Overseas - Indonesia
- Minerals Council of Australia
- San Jose City I Power Corp, Philippines
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- Sakthi Sugars Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- South Luzon Thermal Energy Corporation
- PetroVietnam Power Coal Import and Supply Company
- IEA Clean Coal Centre - UK
- IHS Mccloskey Coal Group - USA
- Electricity Authority, New Zealand
- Energy Development Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- Wilmar Investment Holdings
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- Iligan Light & Power Inc, Philippines
- Marubeni Corporation - India
- VISA Power Limited - India
- The University of Queensland
- Posco Energy - South Korea
- Aboitiz Power Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Globalindo Alam Lestari - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Bahari Cakrawala Sebuku - Indonesia
- Simpson Spence & Young - Indonesia
- Salva Resources Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Bhushan Steel Limited - India
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Energy Link Ltd, New Zealand
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- Essar Steel Hazira Ltd - India
- Central Java Power - Indonesia
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- Meenaskhi Energy Private Limited - India
- Makarim & Taira - Indonesia
- Kumho Petrochemical, South Korea
- Sindya Power Generating Company Private Ltd
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Ministry of Mines - Canada
- Indian Energy Exchange, India
- Central Electricity Authority - India
- London Commodity Brokers - England
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Renaissance Capital - South Africa
- Gujarat Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Gujarat Sidhee Cement - India
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- Holcim Trading Pte Ltd - Singapore
- Petron Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Merrill Lynch Commodities Europe
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Manunggal Multi Energi - Indonesia
- Agrawal Coal Company - India
- Star Paper Mills Limited - India
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Mjunction Services Limited - India
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Indika Energy - Indonesia
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