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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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- ICICI Bank Limited - India
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
- PTC India Limited - India
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- Kohat Cement Company Ltd. - Pakistan
- Metalloyd Limited - United Kingdom
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- SN Aboitiz Power Inc, Philippines
- Siam City Cement - Thailand
- Indika Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Bulk Trading Sa - Switzerland
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
- Singapore Mercantile Exchange
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- MS Steel International - UAE
- LBH Netherlands Bv - Netherlands
- Gujarat Sidhee Cement - India
- Latin American Coal - Colombia
- Bukit Baiduri Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Posco Energy - South Korea
- Interocean Group of Companies - India
- Australian Commodity Traders Exchange
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- Iligan Light & Power Inc, Philippines
- Madhucon Powers Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kepco SPC Power Corporation, Philippines
- Malabar Cements Ltd - India
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Australian Coal Association
- Energy Development Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Semirara Mining Corp, Philippines
- CIMB Investment Bank - Malaysia
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- Orica Australia Pty. Ltd.
- Baramulti Group, Indonesia
- GVK Power & Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- Bhatia International Limited - India
- ASAPP Information Group - India
- Mjunction Services Limited - India
- Ambuja Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Mercuria Energy - Indonesia
- Kumho Petrochemical, South Korea
- Indian Energy Exchange, India
- Sakthi Sugars Limited - India
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- Larsen & Toubro Limited - India
- Leighton Contractors Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- Kideco Jaya Agung - Indonesia
- GAC Shipping (India) Pvt Ltd
- Anglo American - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- Asmin Koalindo Tuhup - Indonesia
- Borneo Indobara - Indonesia
- Oldendorff Carriers - Singapore
- AsiaOL BioFuels Corp., Philippines
- VISA Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Finance - Indonesia
- Globalindo Alam Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Tamil Nadu electricity Board
- IHS Mccloskey Coal Group - USA
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Bhoruka Overseas - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Jaiprakash Power Ventures ltd
- The State Trading Corporation of India Ltd
- Coastal Gujarat Power Limited - India
- San Jose City I Power Corp, Philippines
- Parliament of New Zealand
- Uttam Galva Steels Limited - India
- New Zealand Coal & Carbon
- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Agrawal Coal Company - India
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Meralco Power Generation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- The University of Queensland
- Bayan Resources Tbk. - Indonesia
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Salva Resources Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- SMG Consultants - Indonesia
- Edison Trading Spa - Italy
- Intertek Mineral Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Wilmar Investment Holdings
- Ceylon Electricity Board - Sri Lanka
- Power Finance Corporation Ltd., India
- Semirara Mining and Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Planning Commission, India
- Gujarat Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Chamber of Mines of South Africa
- Xindia Steels Limited - India
- London Commodity Brokers - England
- Energy Link Ltd, New Zealand
- Global Business Power Corporation, Philippines
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
- Kapuas Tunggal Persada - Indonesia
- Standard Chartered Bank - UAE
- Manunggal Multi Energi - Indonesia
- Central Java Power - Indonesia
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Global Coal Blending Company Limited - Australia
- Renaissance Capital - South Africa
- Mintek Dendrill Indonesia
- GMR Energy Limited - India
- Africa Commodities Group - South Africa
- Marubeni Corporation - India
- Bangladesh Power Developement Board
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Commonwealth Bank - Australia
- Parry Sugars Refinery, India
- Central Electricity Authority - India
- Holcim Trading Pte Ltd - Singapore
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Thai Mozambique Logistica
- CNBM International Corporation - China
- Vizag Seaport Private Limited - India
- India Bulls Power Limited - India
- Deloitte Consulting - India
- Sindya Power Generating Company Private Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- Trasteel International SA, Italy
- Cement Manufacturers Association - India
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Economic Council, Georgia
- Videocon Industries ltd - India
- Samtan Co., Ltd - South Korea
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Grasim Industreis Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Sojitz Corporation - Japan
- White Energy Company Limited
- Attock Cement Pakistan Limited
- Star Paper Mills Limited - India
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- Formosa Plastics Group - Taiwan
- Medco Energi Mining Internasional
- Barasentosa Lestari - Indonesia
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Lanco Infratech Ltd - India
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Carbofer General Trading SA - India
- Indogreen Group - Indonesia
- Karaikal Port Pvt Ltd - India
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