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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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Friday, 15 January 21
OVER US$50 BILLION IN GAS POWER PROJECTS AND LNG IMPORT FACILITIES AT RISK OF CANCELLATION IN BANGLADESH, PAKISTAN AND VIETNAM - IEEFA
Pakistan and Bangladesh have already cancelled tenders for LNG imports
Emerging markets such as Vietnam, Pakistan and Bangladesh tha ...
Friday, 15 January 21
VIETNAM'S EXTRAORDINARY ROOFTOP SOLAR SUCCESS DEALS ANOTHER BLOW TO THE REMAINING COAL PIPELINE - IEEFA
9.3 gigawatts peak of solar capacity, equal to 6 coal power plants, installed in less than a year
Vietnam’s solar power indust ...
Friday, 15 January 21
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Thursday, 14 January 21
KOREA MIDLAND POWER INVITED BIDS FOR AUSTRALIAN COAL FOR THREE YEARS SUPPLY
COALspot.com: Korea Midland Power Co. Ltd, issued an International tender for total 1,560,000 MT of Min.5,700 kcal/kg NCV coal of Australian Origin ...
Wednesday, 13 January 21
CHINA THERMAL GENCO PROFITS FACE PRESSURE AMID POWER SHORTAGES - FITHCH WIRE
High coal and gas prices will put near-term pressure on margins for thermal power generators in China, says Fitch Ratings. However, the power short ...
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- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- Global Green Power PLC Corporation, Philippines
- Wilmar Investment Holdings
- GMR Energy Limited - India
- GVK Power & Infra Limited - India
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Thiess Contractors Indonesia
- Electricity Authority, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Madhucon Powers Ltd - India
- Agrawal Coal Company - India
- Bukit Baiduri Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Bulk Trading Sa - Switzerland
- Alfred C Toepfer International GmbH - Germany
- Maheswari Brothers Coal Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Essar Steel Hazira Ltd - India
- Timah Investasi Mineral - Indoneisa
- Romanian Commodities Exchange
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Bayan Resources Tbk. - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Anglo American - United Kingdom
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- CNBM International Corporation - China
- Bahari Cakrawala Sebuku - Indonesia
- White Energy Company Limited
- Borneo Indobara - Indonesia
- Siam City Cement - Thailand
- Leighton Contractors Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Ceylon Electricity Board - Sri Lanka
- Independent Power Producers Association of India
- Ind-Barath Power Infra Limited - India
- Renaissance Capital - South Africa
- Marubeni Corporation - India
- Chamber of Mines of South Africa
- Kumho Petrochemical, South Korea
- Edison Trading Spa - Italy
- Sree Jayajothi Cements Limited - India
- Sinarmas Energy and Mining - Indonesia
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- New Zealand Coal & Carbon
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- GAC Shipping (India) Pvt Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Central Java Power - Indonesia
- Coalindo Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Aboitiz Power Corporation - Philippines
- Mintek Dendrill Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sakthi Sugars Limited - India
- Gujarat Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Grasim Industreis Ltd - India
- Karaikal Port Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Straits Asia Resources Limited - Singapore
- Pendopo Energi Batubara - Indonesia
- Central Electricity Authority - India
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- Star Paper Mills Limited - India
- Wood Mackenzie - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Deloitte Consulting - India
- Posco Energy - South Korea
- Salva Resources Pvt Ltd - India
- Lanco Infratech Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Indian Energy Exchange, India
- Altura Mining Limited, Indonesia
- Jindal Steel & Power Ltd - India
- IEA Clean Coal Centre - UK
- Jorong Barutama Greston.PT - Indonesia
- Coal and Oil Company - UAE
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Globalindo Alam Lestari - Indonesia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Antam Resourcindo - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- London Commodity Brokers - England
- ICICI Bank Limited - India
- Port Waratah Coal Services - Australia
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Oil Corporation Limited
- PTC India Limited - India
- Tata Chemicals Ltd - India
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- McConnell Dowell - Australia
- Indo Tambangraya Megah - Indonesia
- Sical Logistics Limited - India
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Energy Link Ltd, New Zealand
- PNOC Exploration Corporation - Philippines
- Gujarat Sidhee Cement - India
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Bharathi Cement Corporation - India
- Coastal Gujarat Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Ministry of Mines - Canada
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- TeaM Sual Corporation - Philippines
- Parry Sugars Refinery, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhoruka Overseas - Indonesia
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Trasteel International SA, Italy
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- SMG Consultants - Indonesia
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- PowerSource Philippines DevCo
- LBH Netherlands Bv - Netherlands
- Indogreen Group - Indonesia
- The University of Queensland
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Indika Energy - Indonesia
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- Eastern Coal Council - USA
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Price Waterhouse Coopers - Russia
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Minerals Council of Australia
- Power Finance Corporation Ltd., India
- Commonwealth Bank - Australia
- Directorate General of MIneral and Coal - Indonesia
- Vedanta Resources Plc - India
- Videocon Industries ltd - India
- Medco Energi Mining Internasional
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Oldendorff Carriers - Singapore
- Singapore Mercantile Exchange
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Sindya Power Generating Company Private Ltd
- Karbindo Abesyapradhi - Indoneisa
- Dalmia Cement Bharat India
- Aditya Birla Group - India
- India Bulls Power Limited - India
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