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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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Thursday, 09 November 23
GREEK AND CHINESE COMPANIES OWN 34% OF THE GLOBAL FLEET’S CARGO CAPACITY - BIMCO
“The global fleet of cargo carrying ships consists of around 61,000 ships with a deadweight capacity of about 2,200 million tonnes. The ships ...
Monday, 23 October 23
CHINA SEPT COAL OUTPUT HITS SIX-MONTH HIGH ON RISING POWER DEMAND - REUTERS
China’s September coal output rose 0.4% from August to the highest level since March, official data showed on Wednesday, on rising power dema ...
Monday, 23 October 23
INDIA COAL INVENTORIES DROP AT FASTEST PACE IN TWO YEARS, BOOSTING IMPORTS - REUTERS
Coal inventories at Indian power plants in the first half of October fell at their fastest rate in two years, an analysis of government data showed ...
Tuesday, 19 September 23
LNG SHIPPING STOCKS: THE ASIAN GROWTH UP-INDICES
Last week, the UP World LNG Shipping Index (UPI) gained 3.81 points or 2.51%, closing at 155.85 points. This index tracks the performance of LNG sh ...
Sunday, 10 September 23
GOLDMAN SACHS PREDICTS OIL PRICE TO HIT $100 ON OPEC CUTS - YAHOO FINANCE
Oil supply cuts by Saudi Arabia and Russia could lead to Brent crude jumping as high as $107 a barrel in 2024, Goldman Sachs Commodities Research h ...
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- Jorong Barutama Greston.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Dalmia Cement Bharat India
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Ministry of Transport, Egypt
- Antam Resourcindo - Indonesia
- PTC India Limited - India
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- Makarim & Taira - Indonesia
- Parliament of New Zealand
- GAC Shipping (India) Pvt Ltd
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- Ind-Barath Power Infra Limited - India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The Treasury - Australian Government
- Mercuria Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Minerals Council of Australia
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- London Commodity Brokers - England
- New Zealand Coal & Carbon
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
- Agrawal Coal Company - India
- Orica Australia Pty. Ltd.
- Chamber of Mines of South Africa
- Metalloyd Limited - United Kingdom
- Sindya Power Generating Company Private Ltd
- Mintek Dendrill Indonesia
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- IHS Mccloskey Coal Group - USA
- Vijayanagar Sugar Pvt Ltd - India
- GVK Power & Infra Limited - India
- Salva Resources Pvt Ltd - India
- Carbofer General Trading SA - India
- Parry Sugars Refinery, India
- Bukit Asam (Persero) Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Malabar Cements Ltd - India
- Kumho Petrochemical, South Korea
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Thai Mozambique Logistica
- Mercator Lines Limited - India
- Eastern Coal Council - USA
- Sinarmas Energy and Mining - Indonesia
- Interocean Group of Companies - India
- GMR Energy Limited - India
- Timah Investasi Mineral - Indoneisa
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Straits Asia Resources Limited - Singapore
- Indika Energy - Indonesia
- Thiess Contractors Indonesia
- Independent Power Producers Association of India
- SMG Consultants - Indonesia
- Maheswari Brothers Coal Limited - India
- Sree Jayajothi Cements Limited - India
- Bukit Makmur.PT - Indonesia
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- Romanian Commodities Exchange
- Karbindo Abesyapradhi - Indoneisa
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Price Waterhouse Coopers - Russia
- The University of Queensland
- Tamil Nadu electricity Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Rio Tinto Coal - Australia
- White Energy Company Limited
- Medco Energi Mining Internasional
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Gujarat Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Attock Cement Pakistan Limited
- TNB Fuel Sdn Bhd - Malaysia
- Kideco Jaya Agung - Indonesia
- Riau Bara Harum - Indonesia
- Uttam Galva Steels Limited - India
- Economic Council, Georgia
- AsiaOL BioFuels Corp., Philippines
- IEA Clean Coal Centre - UK
- OPG Power Generation Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- International Coal Ventures Pvt Ltd - India
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Coal and Oil Company - UAE
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Essar Steel Hazira Ltd - India
- Planning Commission, India
- Banpu Public Company Limited - Thailand
- Chettinad Cement Corporation Ltd - India
- Ministry of Mines - Canada
- South Luzon Thermal Energy Corporation
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- CNBM International Corporation - China
- Energy Development Corp, Philippines
- Port Waratah Coal Services - Australia
- Neyveli Lignite Corporation Ltd, - India
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Globalindo Alam Lestari - Indonesia
- Meralco Power Generation, Philippines
- Sical Logistics Limited - India
- Indo Tambangraya Megah - Indonesia
- Bulk Trading Sa - Switzerland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Africa Commodities Group - South Africa
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sakthi Sugars Limited - India
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Authority, New Zealand
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- VISA Power Limited - India
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- Vizag Seaport Private Limited - India
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Leighton Contractors Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Merrill Lynch Commodities Europe
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Xindia Steels Limited - India
- Posco Energy - South Korea
- The State Trading Corporation of India Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Madhucon Powers Ltd - India
- Coastal Gujarat Power Limited - India
- Singapore Mercantile Exchange
- Australian Coal Association
- Deloitte Consulting - India
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Wilmar Investment Holdings
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- Therma Luzon, Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- Aboitiz Power Corporation - Philippines
- Heidelberg Cement - Germany
- Bhushan Steel Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Grasim Industreis Ltd - India
- Savvy Resources Ltd - HongKong
- Goldman Sachs - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Sarangani Energy Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- MS Steel International - UAE
- Pendopo Energi Batubara - Indonesia
- Ambuja Cements Ltd - India
- Central Java Power - Indonesia
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Commonwealth Bank - Australia
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- SMC Global Power, Philippines
- Anglo American - United Kingdom
- Indonesian Coal Mining Association
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