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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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Thursday, 21 January 21
LNG MARKET RIDING HIGH, BUT WILL THE GAINS CONTINUE? - DREWRY
The LNG market started 2021 on a high note with Asian spot prices crossing $30 per MMBtu while LNG shipping rates recorded a high $350k per day due ...
Thursday, 21 January 21
CHINA'S SPOT THERMAL COAL PRICES REFRESH RECORD HIGH - MYSTEEL
Despite the moderate rebound in temperatures across most regions of China after late December’s deep-freeze, thermal coal prices in the count ...
Wednesday, 20 January 21
CORONAVIRUS OUTBREAK IN HEBEI HAS LIMITED IMPACT ON CHINA'S STEEL INDUSTRY - FITCH RATINGS
The recent Covid-19 outbreak in the steel producing hub Hebei will not have material impact on China’s steel industry, Fitch Ratings says.
...
Wednesday, 20 January 21
MARKET INSIGHT - INTERMODAL
While 2020 is finally behind us, its negative impacts are still hovering over the shipping market. That being said, it is still too early to even s ...
Saturday, 16 January 21
SEABORNE TRADE IN STEAM COAL DECREASED BY 11.6% FROM 937 MILLION TONNES IN 2019 TO 828 MILLION TONNES IN 2020 - COAL IMPORTERS ASSOCIATION, GERMANY
According to preliminary calculations by the German Coal Importers Association (Verein der Kohlenimporteure e. V.), global hard coal production dec ...
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- Malabar Cements Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- Samtan Co., Ltd - South Korea
- Oldendorff Carriers - Singapore
- LBH Netherlands Bv - Netherlands
- Sindya Power Generating Company Private Ltd
- Global Green Power PLC Corporation, Philippines
- Ministry of Mines - Canada
- Vizag Seaport Private Limited - India
- Semirara Mining Corp, Philippines
- Borneo Indobara - Indonesia
- Indonesian Coal Mining Association
- Barasentosa Lestari - Indonesia
- Agrawal Coal Company - India
- South Luzon Thermal Energy Corporation
- Romanian Commodities Exchange
- International Coal Ventures Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wood Mackenzie - Singapore
- Orica Australia Pty. Ltd.
- Directorate General of MIneral and Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kohat Cement Company Ltd. - Pakistan
- GMR Energy Limited - India
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Vedanta Resources Plc - India
- Bahari Cakrawala Sebuku - Indonesia
- Port Waratah Coal Services - Australia
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- Electricity Authority, New Zealand
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- Posco Energy - South Korea
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- GVK Power & Infra Limited - India
- Bhushan Steel Limited - India
- Power Finance Corporation Ltd., India
- Edison Trading Spa - Italy
- Ministry of Transport, Egypt
- Deloitte Consulting - India
- Eastern Coal Council - USA
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement PLC, Thailand
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- Interocean Group of Companies - India
- Minerals Council of Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indo Tambangraya Megah - Indonesia
- Directorate Of Revenue Intelligence - India
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- Maharashtra Electricity Regulatory Commission - India
- Antam Resourcindo - Indonesia
- Bhoruka Overseas - Indonesia
- Standard Chartered Bank - UAE
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- Bukit Baiduri Energy - Indonesia
- Sojitz Corporation - Japan
- Tamil Nadu electricity Board
- Makarim & Taira - Indonesia
- Ambuja Cements Ltd - India
- Bulk Trading Sa - Switzerland
- Indian Oil Corporation Limited
- Parry Sugars Refinery, India
- CNBM International Corporation - China
- Manunggal Multi Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kalimantan Lumbung Energi - Indonesia
- Central Electricity Authority - India
- Sical Logistics Limited - India
- Salva Resources Pvt Ltd - India
- Thiess Contractors Indonesia
- SMG Consultants - Indonesia
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Commonwealth Bank - Australia
- Chamber of Mines of South Africa
- Mintek Dendrill Indonesia
- Holcim Trading Pte Ltd - Singapore
- TeaM Sual Corporation - Philippines
- Mjunction Services Limited - India
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Banpu Public Company Limited - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Maheswari Brothers Coal Limited - India
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Star Paper Mills Limited - India
- Gujarat Sidhee Cement - India
- Latin American Coal - Colombia
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Intertek Mineral Services - Indonesia
- Rio Tinto Coal - Australia
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- The State Trading Corporation of India Ltd
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Xindia Steels Limited - India
- The Treasury - Australian Government
- Goldman Sachs - Singapore
- AsiaOL BioFuels Corp., Philippines
- Metalloyd Limited - United Kingdom
- Miang Besar Coal Terminal - Indonesia
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- ASAPP Information Group - India
- White Energy Company Limited
- Global Business Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Savvy Resources Ltd - HongKong
- PTC India Limited - India
- Australian Coal Association
- Petrochimia International Co. Ltd.- Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Coal and Oil Company - UAE
- Trasteel International SA, Italy
- Bayan Resources Tbk. - Indonesia
- Globalindo Alam Lestari - Indonesia
- Meralco Power Generation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- McConnell Dowell - Australia
- Independent Power Producers Association of India
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Attock Cement Pakistan Limited
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Carbofer General Trading SA - India
- PNOC Exploration Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Grasim Industreis Ltd - India
- Coalindo Energy - Indonesia
- Kumho Petrochemical, South Korea
- Energy Link Ltd, New Zealand
- Straits Asia Resources Limited - Singapore
- Aditya Birla Group - India
- Marubeni Corporation - India
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- MS Steel International - UAE
- Mercuria Energy - Indonesia
- Anglo American - United Kingdom
- Bukit Makmur.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Economic Council, Georgia
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- Kartika Selabumi Mining - Indonesia
- Lanco Infratech Ltd - India
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Wilmar Investment Holdings
- Jindal Steel & Power Ltd - India
- Sakthi Sugars Limited - India
- Kepco SPC Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Sree Jayajothi Cements Limited - India
- Central Java Power - Indonesia
- European Bulk Services B.V. - Netherlands
- Baramulti Group, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- London Commodity Brokers - England
- Essar Steel Hazira Ltd - India
- Parliament of New Zealand
- IHS Mccloskey Coal Group - USA
- Videocon Industries ltd - India
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