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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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Tuesday, 14 November 23
CHINA'S BELT AND ROAD INITIATIVE TURNS AWAY FROM COAL - WOOD MACKENZIE
Ambitious, contentious and big spending, China’s Belt and Road Initiative (BRI) is 10 years old. In that time, China has splashed more than U ...
Friday, 10 November 23
THE COMMODITIES FEED: OIL UNDER PRESSURE - ING
Energy – Brent plummets
The oil market came under significant pressure yesterday. ICE Brent settled 4.19% lower on the day and ...
Friday, 10 November 23
COAL USE AT U.S. POWER PLANTS CONTINUES DOWNWARD SPIRAL; FULL IMPACT ON MINES TO BE FELT IN 2024 - IEEFA
This year, the use of coal by the U.S.’s power producers has been so anemic that the fuel has not achieved a 20% market share in any month so ...
Friday, 10 November 23
INDIA: NATIONAL COAL INDEX RISES 3.83 POINTS IN SEPTEMBER AMID HIGHER DEMAND - LIVEMINT
The National Coal Index (NCI) rose 3.83 points to 143.91 in September amid growing demand for coal.
The union coal ministry on Tuesd ...
Thursday, 09 November 23
WE'RE PRODUCING TOO MUCH COAL, OIL AND GAS, REPORT SAYS - WSJ
World leaders pledged in 2015 to reduce emissions in a combined effort to limit climate change.
Now they are stepping up production ...
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- Central Java Power - Indonesia
- Ministry of Mines - Canada
- Wood Mackenzie - Singapore
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Rashtriya Ispat Nigam Limited - India
- CNBM International Corporation - China
- Aboitiz Power Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- Mercuria Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- MS Steel International - UAE
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Riau Bara Harum - Indonesia
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Wilmar Investment Holdings
- Coalindo Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- TeaM Sual Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Bukit Baiduri Energy - Indonesia
- Commonwealth Bank - Australia
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- Merrill Lynch Commodities Europe
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- Mintek Dendrill Indonesia
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Carbofer General Trading SA - India
- ASAPP Information Group - India
- Asmin Koalindo Tuhup - Indonesia
- Maheswari Brothers Coal Limited - India
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- PowerSource Philippines DevCo
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- Indonesian Coal Mining Association
- Kohat Cement Company Ltd. - Pakistan
- Petrochimia International Co. Ltd.- Taiwan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meenaskhi Energy Private Limited - India
- Borneo Indobara - Indonesia
- Metalloyd Limited - United Kingdom
- Bahari Cakrawala Sebuku - Indonesia
- European Bulk Services B.V. - Netherlands
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Essar Steel Hazira Ltd - India
- VISA Power Limited - India
- Energy Link Ltd, New Zealand
- Indogreen Group - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Marubeni Corporation - India
- Orica Australia Pty. Ltd.
- Mercator Lines Limited - India
- Semirara Mining Corp, Philippines
- Eastern Coal Council - USA
- Romanian Commodities Exchange
- Latin American Coal - Colombia
- Bangladesh Power Developement Board
- Bharathi Cement Corporation - India
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- International Coal Ventures Pvt Ltd - India
- Star Paper Mills Limited - India
- Tamil Nadu electricity Board
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- South Luzon Thermal Energy Corporation
- LBH Netherlands Bv - Netherlands
- Independent Power Producers Association of India
- Kapuas Tunggal Persada - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Oldendorff Carriers - Singapore
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Central Electricity Authority - India
- Indo Tambangraya Megah - Indonesia
- CIMB Investment Bank - Malaysia
- IEA Clean Coal Centre - UK
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- Gujarat Sidhee Cement - India
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Price Waterhouse Coopers - Russia
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Videocon Industries ltd - India
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- ICICI Bank Limited - India
- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- Jaiprakash Power Ventures ltd
- India Bulls Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- The Treasury - Australian Government
- Power Finance Corporation Ltd., India
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Lanco Infratech Ltd - India
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Antam Resourcindo - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meralco Power Generation, Philippines
- Barasentosa Lestari - Indonesia
- Dalmia Cement Bharat India
- Ind-Barath Power Infra Limited - India
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Kalimantan Lumbung Energi - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- White Energy Company Limited
- Toyota Tsusho Corporation, Japan
- Straits Asia Resources Limited - Singapore
- Parry Sugars Refinery, India
- Africa Commodities Group - South Africa
- Bukit Makmur.PT - Indonesia
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- Intertek Mineral Services - Indonesia
- Manunggal Multi Energi - Indonesia
- Siam City Cement - Thailand
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Sree Jayajothi Cements Limited - India
- Trasteel International SA, Italy
- Renaissance Capital - South Africa
- PTC India Limited - India
- The State Trading Corporation of India Ltd
- Maharashtra Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
- GVK Power & Infra Limited - India
- Electricity Generating Authority of Thailand
- Eastern Energy - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Tata Chemicals Ltd - India
- Mjunction Services Limited - India
- Posco Energy - South Korea
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Xindia Steels Limited - India
- New Zealand Coal & Carbon
- Madhucon Powers Ltd - India
- Indian Energy Exchange, India
- Electricity Authority, New Zealand
- Simpson Spence & Young - Indonesia
- Planning Commission, India
- Minerals Council of Australia
- Kartika Selabumi Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Altura Mining Limited, Indonesia
- Therma Luzon, Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Indika Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Indian Oil Corporation Limited
- Directorate General of MIneral and Coal - Indonesia
- Chamber of Mines of South Africa
- PNOC Exploration Corporation - Philippines
- Heidelberg Cement - Germany
- Petron Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- GN Power Mariveles Coal Plant, Philippines
- Medco Energi Mining Internasional
- Grasim Industreis Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Finance - Indonesia
- Agrawal Coal Company - India
- Parliament of New Zealand
- Australian Coal Association
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- Attock Cement Pakistan Limited
- GMR Energy Limited - India
- Sakthi Sugars Limited - India
- Siam City Cement PLC, Thailand
- Bhatia International Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Deloitte Consulting - India
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