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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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Monday, 25 January 21
ULTRAMAX YET ANOTHER POSITIVE WEEK FOR THE SECTOR, WHICH SAW INCREASED DEMAND ACROSS ALL BASINS - BALTIC BRIEFING
Capesize
The Capesize market rocked and rolled these past few days. But by weeks end little had changed on the Capesize 5TC as it settled down ...
Monday, 25 January 21
NEW LAW IN CALIFORNIA, USA, AFFECTING SHIPOWNERS' LIABILITY FOR OIL POLLUTION - BIMCO
Members are advised that amendments to the so-called Lempert-Keene-Seastrand Oil Spill Prevention and Response Act of 1990 in the State of Californ ...
Monday, 25 January 21
COAL INDIA SAYS GEARED UP TO MEET SURGE IN FUEL DEMAND FROM POWER SECTOR - PTI
State-owned Coal India Ltd on Saturday said that it is well geared to meet any surge in demand for coal from the power sector.
The s ...
Sunday, 24 January 21
GOVT ASSURES COAL INDIA OF 'FULL SUPPORT', STRESSES ON LEARNING 'NEW THINGS' - PTI
Coal Minister Pralhad Joshi assured Coal India of full government support, even as he said the PSU needs to learn “new things” for impr ...
Saturday, 23 January 21
GOVT PLANNING TO OPEN UP COAL MARKETING TO STREAMLINE PROCESS - THE INDIAN EXPRESS
The government is considering opening up coal marketing, Coal Secretary Anil Kumar Jain said on Thursday. Currently, production by Coal India is al ...
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- Karaikal Port Pvt Ltd - India
- Chamber of Mines of South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Pendopo Energi Batubara - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- European Bulk Services B.V. - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- Cement Manufacturers Association - India
- Australian Commodity Traders Exchange
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- SMC Global Power, Philippines
- Manunggal Multi Energi - Indonesia
- The State Trading Corporation of India Ltd
- London Commodity Brokers - England
- Metalloyd Limited - United Kingdom
- Parliament of New Zealand
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- McConnell Dowell - Australia
- Bangladesh Power Developement Board
- Merrill Lynch Commodities Europe
- Global Green Power PLC Corporation, Philippines
- Goldman Sachs - Singapore
- Mintek Dendrill Indonesia
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Simpson Spence & Young - Indonesia
- Eastern Coal Council - USA
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Coalindo Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Central Electricity Authority - India
- Gujarat Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- Holcim Trading Pte Ltd - Singapore
- Asmin Koalindo Tuhup - Indonesia
- OPG Power Generation Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Georgia Ports Authority, United States
- Timah Investasi Mineral - Indoneisa
- Semirara Mining Corp, Philippines
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Electricity Authority, New Zealand
- Makarim & Taira - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Australian Coal Association
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- Alfred C Toepfer International GmbH - Germany
- Petrochimia International Co. Ltd.- Taiwan
- Orica Australia Pty. Ltd.
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Altura Mining Limited, Indonesia
- Madhucon Powers Ltd - India
- Binh Thuan Hamico - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining and Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Electricity Generating Authority of Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Dalmia Cement Bharat India
- Siam City Cement PLC, Thailand
- Renaissance Capital - South Africa
- Xindia Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- Ministry of Finance - Indonesia
- LBH Netherlands Bv - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Vedanta Resources Plc - India
- ICICI Bank Limited - India
- Power Finance Corporation Ltd., India
- Port Waratah Coal Services - Australia
- Vizag Seaport Private Limited - India
- Kaltim Prima Coal - Indonesia
- Larsen & Toubro Limited - India
- South Luzon Thermal Energy Corporation
- CIMB Investment Bank - Malaysia
- Central Java Power - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Transport, Egypt
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- SMG Consultants - Indonesia
- India Bulls Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Africa Commodities Group - South Africa
- Standard Chartered Bank - UAE
- CNBM International Corporation - China
- Mercuria Energy - Indonesia
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Aboitiz Power Corporation - Philippines
- Oldendorff Carriers - Singapore
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Toyota Tsusho Corporation, Japan
- AsiaOL BioFuels Corp., Philippines
- Indogreen Group - Indonesia
- Independent Power Producers Association of India
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Globalindo Alam Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Economic Council, Georgia
- Sinarmas Energy and Mining - Indonesia
- Medco Energi Mining Internasional
- Jaiprakash Power Ventures ltd
- Coal and Oil Company - UAE
- The University of Queensland
- Global Coal Blending Company Limited - Australia
- Barasentosa Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- Karbindo Abesyapradhi - Indoneisa
- Bhatia International Limited - India
- Aditya Birla Group - India
- Indo Tambangraya Megah - Indonesia
- Sindya Power Generating Company Private Ltd
- Leighton Contractors Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sakthi Sugars Limited - India
- Indonesian Coal Mining Association
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Petron Corporation, Philippines
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- Samtan Co., Ltd - South Korea
- Heidelberg Cement - Germany
- Directorate General of MIneral and Coal - Indonesia
- Sical Logistics Limited - India
- Cigading International Bulk Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Deloitte Consulting - India
- Parry Sugars Refinery, India
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- VISA Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thai Mozambique Logistica
- Pipit Mutiara Jaya. PT, Indonesia
- Trasteel International SA, Italy
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- Bukit Baiduri Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Wilmar Investment Holdings
- Bhushan Steel Limited - India
- Sree Jayajothi Cements Limited - India
- Planning Commission, India
- Siam City Cement - Thailand
- Indika Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Thiess Contractors Indonesia
- The Treasury - Australian Government
- PTC India Limited - India
- ASAPP Information Group - India
- Grasim Industreis Ltd - India
- Meralco Power Generation, Philippines
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Anglo American - United Kingdom
- Banpu Public Company Limited - Thailand
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- Riau Bara Harum - Indonesia
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- Iligan Light & Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- Sojitz Corporation - Japan
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