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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, 06 January 21
INDONESIA EXCEEDS COAL PRODUCTION TARGET IN 2020
Indonesian coal production reached 557.54 Million Tons in 2020 1.37% higher than of last year’s total target of 550.00 Million Tons, accordin ...
Wednesday, 06 January 21
CHINESE CITIES REPORTEDLY GO DARK AS COUNTRY FACES SHORTAGE OF COAL, A MAJOR AUSTRALIAN EXPORT - CNBC
Several major Chinese cities have reportedly gone dark as authorities limit power usage, citing a shortage of coal.
Analysts said pr ...
Tuesday, 05 January 21
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP - XINHUA
China Taiyuan coal transaction price index stood at 136 points Monday, up 0.91 percent week on week.
The index, released by China Ta ...
Tuesday, 05 January 21
THE INDONESIA COAL PRICE REFERENCE SOARS TO HIGHEST ONE-MONTH INCREASE SINCE DECEMBER 2016
COALspot.com: The Indonesia coal price reference for January 2021 settles above $75 for the first time since July 2019 and to highest one-month inc ...
Monday, 04 January 21
U.S. RENEWABLE ENERGY CONSUMPTION SURPASSES COAL FOR THE FIRST TIME IN OVER 130 YEARS - EIA
In 2019, U.S. annual energy consumption from renewable sources exceeded coal consumption for the first time since before 1885, according to the U.S ...
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- Jorong Barutama Greston.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Bukit Baiduri Energy - Indonesia
- PTC India Limited - India
- SN Aboitiz Power Inc, Philippines
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- The Treasury - Australian Government
- Bhoruka Overseas - Indonesia
- Gujarat Sidhee Cement - India
- Trasteel International SA, Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Posco Energy - South Korea
- Renaissance Capital - South Africa
- Baramulti Group, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Indogreen Group - Indonesia
- Electricity Authority, New Zealand
- Parry Sugars Refinery, India
- Aboitiz Power Corporation - Philippines
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- McConnell Dowell - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Star Paper Mills Limited - India
- Wilmar Investment Holdings
- Larsen & Toubro Limited - India
- Globalindo Alam Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- SMC Global Power, Philippines
- OPG Power Generation Pvt Ltd - India
- Coalindo Energy - Indonesia
- Ministry of Mines - Canada
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- Borneo Indobara - Indonesia
- ASAPP Information Group - India
- Port Waratah Coal Services - Australia
- GAC Shipping (India) Pvt Ltd
- Kaltim Prima Coal - Indonesia
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Power Finance Corporation Ltd., India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Asmin Koalindo Tuhup - Indonesia
- Jindal Steel & Power Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- India Bulls Power Limited - India
- Africa Commodities Group - South Africa
- Global Green Power PLC Corporation, Philippines
- Orica Mining Services - Indonesia
- Sindya Power Generating Company Private Ltd
- Energy Link Ltd, New Zealand
- European Bulk Services B.V. - Netherlands
- Agrawal Coal Company - India
- International Coal Ventures Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- New Zealand Coal & Carbon
- Cigading International Bulk Terminal - Indonesia
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Xindia Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Indika Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- CIMB Investment Bank - Malaysia
- Altura Mining Limited, Indonesia
- Uttam Galva Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Mercuria Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Oldendorff Carriers - Singapore
- Petron Corporation, Philippines
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Australian Commodity Traders Exchange
- Indonesian Coal Mining Association
- PNOC Exploration Corporation - Philippines
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Global Business Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Formosa Plastics Group - Taiwan
- Billiton Holdings Pty Ltd - Australia
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- Dalmia Cement Bharat India
- AsiaOL BioFuels Corp., Philippines
- Barasentosa Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Eastern Energy - Thailand
- Heidelberg Cement - Germany
- Neyveli Lignite Corporation Ltd, - India
- Parliament of New Zealand
- CNBM International Corporation - China
- Romanian Commodities Exchange
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- Grasim Industreis Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Directorate General of MIneral and Coal - Indonesia
- SMG Consultants - Indonesia
- TeaM Sual Corporation - Philippines
- Ministry of Transport, Egypt
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Bulk Trading Sa - Switzerland
- Siam City Cement - Thailand
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- South Luzon Thermal Energy Corporation
- Mintek Dendrill Indonesia
- Holcim Trading Pte Ltd - Singapore
- Miang Besar Coal Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Bharathi Cement Corporation - India
- Savvy Resources Ltd - HongKong
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- White Energy Company Limited
- Thiess Contractors Indonesia
- Commonwealth Bank - Australia
- Leighton Contractors Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- Ambuja Cements Ltd - India
- Indian Energy Exchange, India
- Standard Chartered Bank - UAE
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Sinarmas Energy and Mining - Indonesia
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- Thai Mozambique Logistica
- MS Steel International - UAE
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Vizag Seaport Private Limited - India
- Georgia Ports Authority, United States
- Essar Steel Hazira Ltd - India
- Orica Australia Pty. Ltd.
- Vijayanagar Sugar Pvt Ltd - India
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Pendopo Energi Batubara - Indonesia
- Singapore Mercantile Exchange
- GMR Energy Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Attock Cement Pakistan Limited
- Binh Thuan Hamico - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Antam Resourcindo - Indonesia
- The University of Queensland
- Meralco Power Generation, Philippines
- Marubeni Corporation - India
- Indo Tambangraya Megah - Indonesia
- Toyota Tsusho Corporation, Japan
- IHS Mccloskey Coal Group - USA
- Kartika Selabumi Mining - Indonesia
- Latin American Coal - Colombia
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- Interocean Group of Companies - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Lanco Infratech Ltd - India
- Tamil Nadu electricity Board
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