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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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Wednesday, 10 February 21
MARKET INSIGHT - INTERMODAL
We have just entered February, Chinese New Year holidays are about to start and the SnP market for bulkers is so hot as every seller would dream of ...
Tuesday, 09 February 21
SWITCHING COAL PLANTS TO PLN'S BIOMASS COFIRING PLAN IS NO MAGIC BULLET - IEEFA
Implementation risks for Indonesia PLN's switch from coal to biomass cofiring
PLN’s biomass cofiring plan will require not ...
Friday, 05 February 21
THE INDONESIA COAL PRICE REFERENCE FOR FEBRUARY 2021 SETTLES AT US$ 87.79 PER TON FOB VESSEL
COALspot.com: The Indonesia coal price reference for February 2021 settles at US$ 87.79 per ton FOB vessel. The February reference price is the hig ...
Thursday, 04 February 21
WHY BANGLADESH SHOULDN’T COUNT ON A FOSSIL FUEL FUTURE - IEEFA
Around US$50 billion of LNG projects in Asia at risk of cancellation
Two astonishing figures have circulated in the Asian energy sector in the ...
Wednesday, 03 February 21
INDONESIA TO EXPORT 395 MILLION TONS OF COAL IN 2021 - ESDM
Data from the Ministry of Energy and Mineral Resources shows that, Indonesia is planning to produce 550 million Ton of coal in 2021 and as of t ...
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- OPG Power Generation Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Ind-Barath Power Infra Limited - India
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- Trasteel International SA, Italy
- Madhucon Powers Ltd - India
- Latin American Coal - Colombia
- Attock Cement Pakistan Limited
- White Energy Company Limited
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Mintek Dendrill Indonesia
- London Commodity Brokers - England
- The Treasury - Australian Government
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Makarim & Taira - Indonesia
- Coastal Gujarat Power Limited - India
- Ceylon Electricity Board - Sri Lanka
- Jindal Steel & Power Ltd - India
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Australian Coal Association
- PTC India Limited - India
- Romanian Commodities Exchange
- Orica Mining Services - Indonesia
- Orica Australia Pty. Ltd.
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Indian Energy Exchange, India
- European Bulk Services B.V. - Netherlands
- Indian Oil Corporation Limited
- Sarangani Energy Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- GVK Power & Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bhushan Steel Limited - India
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- Directorate Of Revenue Intelligence - India
- PowerSource Philippines DevCo
- Cement Manufacturers Association - India
- South Luzon Thermal Energy Corporation
- Africa Commodities Group - South Africa
- Toyota Tsusho Corporation, Japan
- Malabar Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- VISA Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Larsen & Toubro Limited - India
- Bangladesh Power Developement Board
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- MS Steel International - UAE
- Bhatia International Limited - India
- Banpu Public Company Limited - Thailand
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Global Green Power PLC Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Authority, New Zealand
- Mercuria Energy - Indonesia
- TeaM Sual Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- SN Aboitiz Power Inc, Philippines
- Edison Trading Spa - Italy
- Chamber of Mines of South Africa
- Indonesian Coal Mining Association
- Australian Commodity Traders Exchange
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Global Business Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Ambuja Cements Ltd - India
- Xindia Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Independent Power Producers Association of India
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- Central Java Power - Indonesia
- CIMB Investment Bank - Malaysia
- SMC Global Power, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Kumho Petrochemical, South Korea
- Interocean Group of Companies - India
- McConnell Dowell - Australia
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Intertek Mineral Services - Indonesia
- Coalindo Energy - Indonesia
- Thai Mozambique Logistica
- Altura Mining Limited, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Agrawal Coal Company - India
- Port Waratah Coal Services - Australia
- Kaltim Prima Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- GAC Shipping (India) Pvt Ltd
- Eastern Energy - Thailand
- Timah Investasi Mineral - Indoneisa
- Posco Energy - South Korea
- PNOC Exploration Corporation - Philippines
- Rio Tinto Coal - Australia
- Indo Tambangraya Megah - Indonesia
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Electricity Generating Authority of Thailand
- Globalindo Alam Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kartika Selabumi Mining - Indonesia
- Standard Chartered Bank - UAE
- SMG Consultants - Indonesia
- Salva Resources Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Chettinad Cement Corporation Ltd - India
- Heidelberg Cement - Germany
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Wood Mackenzie - Singapore
- Thiess Contractors Indonesia
- Parliament of New Zealand
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- ASAPP Information Group - India
- Videocon Industries ltd - India
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- Essar Steel Hazira Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- Semirara Mining and Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Wilmar Investment Holdings
- Deloitte Consulting - India
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Energy Development Corp, Philippines
- Indogreen Group - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- India Bulls Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- Metalloyd Limited - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- CNBM International Corporation - China
- Vedanta Resources Plc - India
- Tata Chemicals Ltd - India
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- Uttam Galva Steels Limited - India
- Eastern Coal Council - USA
- Maharashtra Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- Oldendorff Carriers - Singapore
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- Ministry of Mines - Canada
- Straits Asia Resources Limited - Singapore
- GMR Energy Limited - India
- Central Electricity Authority - India
- Borneo Indobara - Indonesia
- Kobexindo Tractors - Indoneisa
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
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