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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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Sunday, 10 September 23
CHINA AUGUST COAL IMPORTS OF 44.3 MLN T HIT RECORD - REUTERS
China, the world’s top coal consumer, imported 44.3 million metric tons of the fuel last month, customs data showed, the highest amount in an ...
Tuesday, 22 August 23
CHINA'S COAL PRODUCTION LOGS STEADY GROWTH IN JANUARY-JULY: XINHUA
China’s output of raw coal went up 3.6 percent year on year in the first seven months of this year, official data showed.
The ...
Sunday, 13 August 23
THE COMMODITIES FEED: LNG SUPPLY RISKS LINGER - ING
Energy – OPEC sees deficit over remainder of 2023
Oil prices came under some pressure yesterday with ICE Brent settling a litt ...
Wednesday, 09 August 23
COAL TRADE TO RETURN TO 2019 LEVELS - BALTIC EXCHANGE
The International Energy Agency’s mid-year Coal Market Update for 2023 brings both positive and concerning news for the global coal industry. ...
Sunday, 23 July 23
ANALYSIS-INDIA'S COAL MINING BET STUMBLES AS WARY BANKS WEIGH RISING RISKS - REUTERS
India’s drive to ramp up coal output to meet growing energy demand is faltering due to banks’ reluctance to finance newly auctioned min ...
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- Trasteel International SA, Italy
- Eastern Energy - Thailand
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Borneo Indobara - Indonesia
- White Energy Company Limited
- Tata Chemicals Ltd - India
- Thiess Contractors Indonesia
- Billiton Holdings Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- GMR Energy Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Uttam Galva Steels Limited - India
- Riau Bara Harum - Indonesia
- Ind-Barath Power Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- San Jose City I Power Corp, Philippines
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Makarim & Taira - Indonesia
- SMG Consultants - Indonesia
- PTC India Limited - India
- Samtan Co., Ltd - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Globalindo Alam Lestari - Indonesia
- Meralco Power Generation, Philippines
- Dalmia Cement Bharat India
- Jorong Barutama Greston.PT - Indonesia
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Thai Mozambique Logistica
- Bahari Cakrawala Sebuku - Indonesia
- Romanian Commodities Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Malabar Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Parliament of New Zealand
- Vedanta Resources Plc - India
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Tamil Nadu electricity Board
- Toyota Tsusho Corporation, Japan
- Goldman Sachs - Singapore
- Essar Steel Hazira Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Kideco Jaya Agung - Indonesia
- Iligan Light & Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- PNOC Exploration Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Independent Power Producers Association of India
- Ministry of Mines - Canada
- Semirara Mining and Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Indogreen Group - Indonesia
- Ministry of Transport, Egypt
- Karaikal Port Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Economic Council, Georgia
- Kohat Cement Company Ltd. - Pakistan
- TNB Fuel Sdn Bhd - Malaysia
- PowerSource Philippines DevCo
- Australian Coal Association
- Mercator Lines Limited - India
- Star Paper Mills Limited - India
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- Attock Cement Pakistan Limited
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- ICICI Bank Limited - India
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Semirara Mining Corp, Philippines
- Rio Tinto Coal - Australia
- Planning Commission, India
- MS Steel International - UAE
- Baramulti Group, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- Antam Resourcindo - Indonesia
- Energy Development Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- The University of Queensland
- Coalindo Energy - Indonesia
- Aditya Birla Group - India
- Timah Investasi Mineral - Indoneisa
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- Grasim Industreis Ltd - India
- Georgia Ports Authority, United States
- Port Waratah Coal Services - Australia
- Cigading International Bulk Terminal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Siam City Cement PLC, Thailand
- Central Electricity Authority - India
- Meenaskhi Energy Private Limited - India
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Mercuria Energy - Indonesia
- Wood Mackenzie - Singapore
- Siam City Cement - Thailand
- Banpu Public Company Limited - Thailand
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Indo Tambangraya Megah - Indonesia
- Kaltim Prima Coal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- India Bulls Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Vizag Seaport Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Minerals Council of Australia
- Mintek Dendrill Indonesia
- Carbofer General Trading SA - India
- The Treasury - Australian Government
- OPG Power Generation Pvt Ltd - India
- VISA Power Limited - India
- Posco Energy - South Korea
- Therma Luzon, Inc, Philippines
- Indian Oil Corporation Limited
- Renaissance Capital - South Africa
- Jaiprakash Power Ventures ltd
- Electricity Authority, New Zealand
- Eastern Coal Council - USA
- Wilmar Investment Holdings
- Petrochimia International Co. Ltd.- Taiwan
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- Bharathi Cement Corporation - India
- Parry Sugars Refinery, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cement Manufacturers Association - India
- Straits Asia Resources Limited - Singapore
- Gujarat Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- Price Waterhouse Coopers - Russia
- Bangladesh Power Developement Board
- Intertek Mineral Services - Indonesia
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- South Luzon Thermal Energy Corporation
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
- GAC Shipping (India) Pvt Ltd
- New Zealand Coal & Carbon
- Gujarat Mineral Development Corp Ltd - India
- Power Finance Corporation Ltd., India
- SMC Global Power, Philippines
- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- Energy Link Ltd, New Zealand
- Chettinad Cement Corporation Ltd - India
- CNBM International Corporation - China
- Manunggal Multi Energi - Indonesia
- Videocon Industries ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Petron Corporation, Philippines
- Coal and Oil Company - UAE
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Krishnapatnam Port Company Ltd. - India
- ASAPP Information Group - India
- Commonwealth Bank - Australia
- Vijayanagar Sugar Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Central Java Power - Indonesia
- CIMB Investment Bank - Malaysia
- Directorate Of Revenue Intelligence - India
- Standard Chartered Bank - UAE
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Singapore Mercantile Exchange
- Bhoruka Overseas - Indonesia
- Metalloyd Limited - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Medco Energi Mining Internasional
- Sinarmas Energy and Mining - Indonesia
- Bhatia International Limited - India
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