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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, 03 February 21
MARKET INSIGHT - INTERMODAL
"2020 the year from hell for the entire world, had everything for shipowners. The introduction of the sulphur cap and VLSFO, a Pandemic outbre ...
Tuesday, 02 February 21
WILL THE ELECTRONIC B/L BE FULLY IMPLEMENTED? FIVE POINTS TO CONSIDER - MOL
KNOWLEDGE TO ELEVATE
The trend towards digitization of Bills of Lading (B/L) has begun to attract attention in the trade and shipping industrie ...
Monday, 01 February 21
A 56,000-DWT OPEN MANILA WAS FIXED FOR A TRIP VIA INDONESIA REDELIVERY CHINA AT $11,500 - THE BALTIC BRIEFING
Capesize
The Capesize routes endured a week of slippage on rates, bringing the market back down to levels seen at the beginning of the month. D ...
Monday, 01 February 21
PAKISTAN: COAL DEMAND EXPECTED TO SPIKE IN 2021 - DAWN
Coal demand is expected to remain upbeat in 2021 as more coal-fired and captive power plants are coming up in the current year.
Acco ...
Friday, 29 January 21
COAL EXPORTS FROM AUSTRALIA TO MAINLAND CHINA DECLINED BY -22.2% Y-O-Y IN 2020 - BANCHERO COSTA
In the 12 months of 2020, global seaborne coal trade declined by as much as -12.7% year-on-year, according to vessel tracking data from Refinitiv, ...
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- Chettinad Cement Corporation Ltd - India
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- AsiaOL BioFuels Corp., Philippines
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
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- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Eastern Coal Council - USA
- VISA Power Limited - India
- Vedanta Resources Plc - India
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Electricity Authority, New Zealand
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- Medco Energi Mining Internasional
- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- London Commodity Brokers - England
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- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Kobexindo Tractors - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- Bhatia International Limited - India
- Parliament of New Zealand
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- Energy Link Ltd, New Zealand
- Maheswari Brothers Coal Limited - India
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- Kartika Selabumi Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Anglo American - United Kingdom
- IEA Clean Coal Centre - UK
- Jaiprakash Power Ventures ltd
- Kapuas Tunggal Persada - Indonesia
- Power Finance Corporation Ltd., India
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Indonesian Coal Mining Association
- Jindal Steel & Power Ltd - India
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- Sojitz Corporation - Japan
- The University of Queensland
- Bank of Tokyo Mitsubishi UFJ Ltd
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Bharathi Cement Corporation - India
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Star Paper Mills Limited - India
- PowerSource Philippines DevCo
- Wood Mackenzie - Singapore
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Singapore Mercantile Exchange
- Alfred C Toepfer International GmbH - Germany
- Altura Mining Limited, Indonesia
- GAC Shipping (India) Pvt Ltd
- Binh Thuan Hamico - Vietnam
- Siam City Cement - Thailand
- Planning Commission, India
- Bhushan Steel Limited - India
- Antam Resourcindo - Indonesia
- Tata Chemicals Ltd - India
- Port Waratah Coal Services - Australia
- Minerals Council of Australia
- Orica Australia Pty. Ltd.
- Barasentosa Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Rio Tinto Coal - Australia
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- Timah Investasi Mineral - Indoneisa
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Intertek Mineral Services - Indonesia
- PNOC Exploration Corporation - Philippines
- TeaM Sual Corporation - Philippines
- New Zealand Coal & Carbon
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Ministry of Finance - Indonesia
- Marubeni Corporation - India
- Global Business Power Corporation, Philippines
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Price Waterhouse Coopers - Russia
- PTC India Limited - India
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- Semirara Mining Corp, Philippines
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- ICICI Bank Limited - India
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- Merrill Lynch Commodities Europe
- Directorate General of MIneral and Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Trasteel International SA, Italy
- Meenaskhi Energy Private Limited - India
- Goldman Sachs - Singapore
- Bulk Trading Sa - Switzerland
- SN Aboitiz Power Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Simpson Spence & Young - Indonesia
- Latin American Coal - Colombia
- SMG Consultants - Indonesia
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Kumho Petrochemical, South Korea
- Economic Council, Georgia
- Billiton Holdings Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- GMR Energy Limited - India
- Petron Corporation, Philippines
- Ministry of Transport, Egypt
- Pipit Mutiara Jaya. PT, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Agrawal Coal Company - India
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Makarim & Taira - Indonesia
- Coalindo Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Cement Manufacturers Association - India
- Thai Mozambique Logistica
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- India Bulls Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Tamil Nadu electricity Board
- Global Coal Blending Company Limited - Australia
- Thiess Contractors Indonesia
- Dalmia Cement Bharat India
- Bhoruka Overseas - Indonesia
- Edison Trading Spa - Italy
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- OPG Power Generation Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Xindia Steels Limited - India
- Salva Resources Pvt Ltd - India
- Ministry of Mines - Canada
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Manunggal Multi Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- MS Steel International - UAE
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- Orica Mining Services - Indonesia
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
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- Siam City Cement PLC, Thailand
- Mjunction Services Limited - India
- Leighton Contractors Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vizag Seaport Private Limited - India
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
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- White Energy Company Limited
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- SMC Global Power, Philippines
- Samtan Co., Ltd - South Korea
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Formosa Plastics Group - Taiwan
- Eastern Energy - Thailand
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- Posco Energy - South Korea
- Deloitte Consulting - India
- IHS Mccloskey Coal Group - USA
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