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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, 01 December 23
COAL MINERS GROUP EXPECTS INDONESIA’S 2023 COAL OUTPUT TO SURPASS TARGET - REUTERS
The Indonesian Coal Mining Association (ICMA) expects the country’s 2023 coal output to surpass the official target of 695 million metric ton ...
Friday, 24 November 23
COAL IMPORTS TO INDIA IN OCTOBER 2023 REACHED HIGHEST LEVELS IN NEARLY A YEAR AND A HALF - VESSELSVALUE, VESON NAUTICAL
In October, coal imports to India reached 13.8 mt in October 2023, according to Oceanbolt, a Veson Nautical solution, the highest level since May 2 ...
Friday, 24 November 23
COAL SHIPMENTS TO ADVANCED ECONOMIES DOWN 17% SO FAR IN 2023 - BIMCO
In the first ten months of 2023, coal shipments to advanced economies fell by 17% y/y, as demand for electricity declined and the share of electric ...
Friday, 24 November 23
INTELLIGENT COAL MINES CONTRIBUTE TO IMPROVING SAFETY STANDARDS - CHINA DAILY
Mechanization, automation and intelligent upgrades have contributed to improved safety in coal mines, though the level of development of intelligen ...
Friday, 24 November 23
WHY AUSTRALIA'S COAL MINES ARE GETTING BIGGER - IEEFA
Australia’s largest coal mines are getting larger. Mines in New South Wales (NSW) are ramping up production following the state’s recov ...
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- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Posco Energy - South Korea
- Bharathi Cement Corporation - India
- Anglo American - United Kingdom
- Larsen & Toubro Limited - India
- Straits Asia Resources Limited - Singapore
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Mercator Lines Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Formosa Plastics Group - Taiwan
- Ministry of Mines - Canada
- Aditya Birla Group - India
- Chettinad Cement Corporation Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Goldman Sachs - Singapore
- Merrill Lynch Commodities Europe
- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- Kartika Selabumi Mining - Indonesia
- The Treasury - Australian Government
- Orica Australia Pty. Ltd.
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Sojitz Corporation - Japan
- The University of Queensland
- Central Electricity Authority - India
- Uttam Galva Steels Limited - India
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Barasentosa Lestari - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Authority, New Zealand
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Bangladesh Power Developement Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- San Jose City I Power Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Oldendorff Carriers - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Marubeni Corporation - India
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Maheswari Brothers Coal Limited - India
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Lanco Infratech Ltd - India
- PTC India Limited - India
- Metalloyd Limited - United Kingdom
- Electricity Generating Authority of Thailand
- Economic Council, Georgia
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- Deloitte Consulting - India
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- International Coal Ventures Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- European Bulk Services B.V. - Netherlands
- Aboitiz Power Corporation - Philippines
- Indogreen Group - Indonesia
- Wilmar Investment Holdings
- Cement Manufacturers Association - India
- Australian Coal Association
- Orica Mining Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Meralco Power Generation, Philippines
- Pendopo Energi Batubara - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Miang Besar Coal Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- Sical Logistics Limited - India
- Parry Sugars Refinery, India
- Star Paper Mills Limited - India
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Altura Mining Limited, Indonesia
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Riau Bara Harum - Indonesia
- Binh Thuan Hamico - Vietnam
- Ministry of Transport, Egypt
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- Manunggal Multi Energi - Indonesia
- New Zealand Coal & Carbon
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- Timah Investasi Mineral - Indoneisa
- Essar Steel Hazira Ltd - India
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Minerals Council of Australia
- Global Green Power PLC Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Petron Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Wood Mackenzie - Singapore
- Kobexindo Tractors - Indoneisa
- Sree Jayajothi Cements Limited - India
- Bayan Resources Tbk. - Indonesia
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Central Java Power - Indonesia
- Heidelberg Cement - Germany
- Karaikal Port Pvt Ltd - India
- Borneo Indobara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Toyota Tsusho Corporation, Japan
- Indonesian Coal Mining Association
- TNB Fuel Sdn Bhd - Malaysia
- Ambuja Cements Ltd - India
- Carbofer General Trading SA - India
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- IEA Clean Coal Centre - UK
- Mjunction Services Limited - India
- Energy Link Ltd, New Zealand
- CIMB Investment Bank - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- The State Trading Corporation of India Ltd
- Maharashtra Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- Romanian Commodities Exchange
- Indian Oil Corporation Limited
- Tamil Nadu electricity Board
- India Bulls Power Limited - India
- GMR Energy Limited - India
- GVK Power & Infra Limited - India
- Bulk Trading Sa - Switzerland
- Malabar Cements Ltd - India
- SMC Global Power, Philippines
- Kepco SPC Power Corporation, Philippines
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ICICI Bank Limited - India
- Port Waratah Coal Services - Australia
- Dalmia Cement Bharat India
- Globalindo Alam Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Power Finance Corporation Ltd., India
- Australian Commodity Traders Exchange
- Madhucon Powers Ltd - India
- Gujarat Sidhee Cement - India
- Georgia Ports Authority, United States
- Salva Resources Pvt Ltd - India
- Independent Power Producers Association of India
- Cigading International Bulk Terminal - Indonesia
- Coalindo Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bhatia International Limited - India
- SMG Consultants - Indonesia
- Baramulti Group, Indonesia
- Rio Tinto Coal - Australia
- Ministry of Finance - Indonesia
- Banpu Public Company Limited - Thailand
- Edison Trading Spa - Italy
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- McConnell Dowell - Australia
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Bhoruka Overseas - Indonesia
- Siam City Cement - Thailand
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Xindia Steels Limited - India
- Savvy Resources Ltd - HongKong
- Latin American Coal - Colombia
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Grasim Industreis Ltd - India
- Eastern Energy - Thailand
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Makarim & Taira - Indonesia
- PowerSource Philippines DevCo
- Parliament of New Zealand
- Siam City Cement PLC, Thailand
- Antam Resourcindo - Indonesia
- Sakthi Sugars Limited - India
- Agrawal Coal Company - India
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