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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, 13 January 21
COAL TO BE BIGGEST CONTRIBUTOR TO INDIA'S $5 TRILLION ECONOMY: AMIT SHAH - BUSINESS STANDARD
The Centre on Monday awarded the letter of allocation to successful bidders of coal mines under the commercial auction held during October-November ...
Monday, 11 January 21
MUTED COAL RECOVERY IN 2021 - BALTIC EXCHANGE
Coal demand is expected to rebound in 2021
Medium-term outlook is less favourable although demand declines are expected to be subtle ...
Sunday, 10 January 21
KOREAN GENCOS INVITED BIDS FOR TOTAL 880,000 TONS OF COAL FOR MARCH 2021 LOADING
COALspot.com: Korea South-East Power Co., Ltd. (KOEN), on behalf of EWP, KOSPO, KOSEP and KOWEPO issued an international tender for total 880 ...
Friday, 08 January 21
INDIA COULD COMPETE AGAINST CHINA IN SOLAR MODULE PRODUCTION WITH THE RIGHT GOVERNMENT SUPPORT - IEEFA
The focus should be on helping manufacturers become globally competitive
Although one of the top 10 solar module producers in the world, India ...
Thursday, 07 January 21
FITCH FORECASTS DOUBLING IN ASIAN WIND, SOLAR CAPACITY BY 2029, TOPPING 1,500GW
Despite some near-term delays due to the Covid-19 pandemic, solar power and offshore wind will drive steep growth in non-hydro renewables in Asia, ...
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- Ambuja Cements Ltd - India
- Australian Coal Association
- New Zealand Coal & Carbon
- SMC Global Power, Philippines
- Georgia Ports Authority, United States
- Essar Steel Hazira Ltd - India
- Indian Oil Corporation Limited
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Port Waratah Coal Services - Australia
- PNOC Exploration Corporation - Philippines
- Riau Bara Harum - Indonesia
- Commonwealth Bank - Australia
- Mintek Dendrill Indonesia
- Edison Trading Spa - Italy
- MS Steel International - UAE
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- The University of Queensland
- Mercuria Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Jindal Steel & Power Ltd - India
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- Tamil Nadu electricity Board
- Price Waterhouse Coopers - Russia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining Corp, Philippines
- Central Electricity Authority - India
- Dalmia Cement Bharat India
- The State Trading Corporation of India Ltd
- Barasentosa Lestari - Indonesia
- Mercator Lines Limited - India
- Makarim & Taira - Indonesia
- London Commodity Brokers - England
- Bulk Trading Sa - Switzerland
- Marubeni Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Altura Mining Limited, Indonesia
- Global Green Power PLC Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Grasim Industreis Ltd - India
- Binh Thuan Hamico - Vietnam
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- Wilmar Investment Holdings
- IHS Mccloskey Coal Group - USA
- Sojitz Corporation - Japan
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Coal Council - USA
- Wood Mackenzie - Singapore
- SMG Consultants - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- Directorate Of Revenue Intelligence - India
- Medco Energi Mining Internasional
- ICICI Bank Limited - India
- Uttam Galva Steels Limited - India
- McConnell Dowell - Australia
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- TeaM Sual Corporation - Philippines
- Ministry of Mines - Canada
- Bukit Asam (Persero) Tbk - Indonesia
- Posco Energy - South Korea
- Eastern Energy - Thailand
- Cement Manufacturers Association - India
- Bhatia International Limited - India
- VISA Power Limited - India
- Simpson Spence & Young - Indonesia
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indogreen Group - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Formosa Plastics Group - Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Ministry of Transport, Egypt
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- Energy Development Corp, Philippines
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Samtan Co., Ltd - South Korea
- Bangladesh Power Developement Board
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Heidelberg Cement - Germany
- Alfred C Toepfer International GmbH - Germany
- Parliament of New Zealand
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- CNBM International Corporation - China
- Ceylon Electricity Board - Sri Lanka
- Bukit Makmur.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Salva Resources Pvt Ltd - India
- White Energy Company Limited
- Sical Logistics Limited - India
- Meenaskhi Energy Private Limited - India
- Kumho Petrochemical, South Korea
- Bharathi Cement Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Videocon Industries ltd - India
- India Bulls Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Chamber of Mines of South Africa
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Economic Council, Georgia
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- Savvy Resources Ltd - HongKong
- ASAPP Information Group - India
- Maharashtra Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Bhushan Steel Limited - India
- Indo Tambangraya Megah - Indonesia
- Toyota Tsusho Corporation, Japan
- Directorate General of MIneral and Coal - Indonesia
- Trasteel International SA, Italy
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- Xindia Steels Limited - India
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Metalloyd Limited - United Kingdom
- Orica Mining Services - Indonesia
- Global Coal Blending Company Limited - Australia
- The Treasury - Australian Government
- Siam City Cement PLC, Thailand
- Romanian Commodities Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- Global Business Power Corporation, Philippines
- Minerals Council of Australia
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Australian Commodity Traders Exchange
- Mjunction Services Limited - India
- Indian Energy Exchange, India
- Latin American Coal - Colombia
- Indonesian Coal Mining Association
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- Holcim Trading Pte Ltd - Singapore
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Karaikal Port Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Antam Resourcindo - Indonesia
- Straits Asia Resources Limited - Singapore
- Star Paper Mills Limited - India
- Coastal Gujarat Power Limited - India
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Thiess Contractors Indonesia
- IEA Clean Coal Centre - UK
- Vedanta Resources Plc - India
- Globalindo Alam Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sakthi Sugars Limited - India
- Iligan Light & Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- Petron Corporation, Philippines
- Planning Commission, India
- Cigading International Bulk Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Kartika Selabumi Mining - Indonesia
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