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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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Monday, 17 July 23
APPROVED AMMONIA-FUELED CONTAINERSHIP - BENEFITS AND RISKS: REED SMITH
Following the news in Offshore Energy that Korea Maritime Consultants has secured approval in principle from the American Bureau of Shipping for it ...
Friday, 14 July 23
CLEAN COAL USE KEY TO DEEP CUTS IN EMISSIONS, STABLE ELECTRICITY SUPPLY - CHINA DAILY
China must push for the clean use of coal and step up integration of the dirty fuel with carbon capture, utilization and storage to achieve sustain ...
Thursday, 13 July 23
VIETNAM'S COAL EMISSIONS PRIMED FOR SURGE AFTER IMPORTS JUMP - REUTERS
Vietnam’s thermal power emissions are primed for a steep climb this summer after the country’s imports of thermal coal soared to their ...
Monday, 26 June 23
COAL PRODUCTION AND CONSUMPTION UP IN 2022 - EUROSTAT
In 2022, EU coal production and consumption continued to increase, reaching 349 million tonnes (+5% compared with the previous year) and 454 millio ...
Wednesday, 21 June 23
QATAR STRIKES SECOND BIG LNG SUPPLY DEAL WITH CHINA - REUTERS
Qatar on Tuesday secured its second large gas supply deal with a Chinese state-controlled company in less than a year, putting Asia clearly ahead i ...
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- ICICI Bank Limited - India
- The State Trading Corporation of India Ltd
- Australian Coal Association
- OPG Power Generation Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Attock Cement Pakistan Limited
- Aditya Birla Group - India
- Siam City Cement PLC, Thailand
- Goldman Sachs - Singapore
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- CIMB Investment Bank - Malaysia
- Renaissance Capital - South Africa
- Borneo Indobara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Price Waterhouse Coopers - Russia
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Timah Investasi Mineral - Indoneisa
- Central Electricity Authority - India
- SMG Consultants - Indonesia
- The University of Queensland
- MS Steel International - UAE
- IHS Mccloskey Coal Group - USA
- Sojitz Corporation - Japan
- PTC India Limited - India
- Bangladesh Power Developement Board
- GVK Power & Infra Limited - India
- Medco Energi Mining Internasional
- Indian Oil Corporation Limited
- Parliament of New Zealand
- Siam City Cement - Thailand
- Iligan Light & Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Semirara Mining Corp, Philippines
- Ambuja Cements Ltd - India
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Global Coal Blending Company Limited - Australia
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- Essar Steel Hazira Ltd - India
- Agrawal Coal Company - India
- Toyota Tsusho Corporation, Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Rashtriya Ispat Nigam Limited - India
- Ministry of Transport, Egypt
- Parry Sugars Refinery, India
- International Coal Ventures Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Altura Mining Limited, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
- Independent Power Producers Association of India
- Edison Trading Spa - Italy
- Kideco Jaya Agung - Indonesia
- Eastern Energy - Thailand
- Interocean Group of Companies - India
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- VISA Power Limited - India
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Petron Corporation, Philippines
- Global Business Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- Grasim Industreis Ltd - India
- Manunggal Multi Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- London Commodity Brokers - England
- Standard Chartered Bank - UAE
- Ind-Barath Power Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- SN Aboitiz Power Inc, Philippines
- Indonesian Coal Mining Association
- Madhucon Powers Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- Carbofer General Trading SA - India
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Tata Chemicals Ltd - India
- Dalmia Cement Bharat India
- Electricity Authority, New Zealand
- Bhoruka Overseas - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Oldendorff Carriers - Singapore
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Thiess Contractors Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Makarim & Taira - Indonesia
- Bhatia International Limited - India
- Banpu Public Company Limited - Thailand
- Holcim Trading Pte Ltd - Singapore
- Coastal Gujarat Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Wilmar Investment Holdings
- Africa Commodities Group - South Africa
- Sical Logistics Limited - India
- Wood Mackenzie - Singapore
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Economic Council, Georgia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- Maheswari Brothers Coal Limited - India
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- Vedanta Resources Plc - India
- India Bulls Power Limited - India
- Jindal Steel & Power Ltd - India
- LBH Netherlands Bv - Netherlands
- TeaM Sual Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- Indian Energy Exchange, India
- Salva Resources Pvt Ltd - India
- Chamber of Mines of South Africa
- Larsen & Toubro Limited - India
- Simpson Spence & Young - Indonesia
- The Treasury - Australian Government
- SMC Global Power, Philippines
- Bayan Resources Tbk. - Indonesia
- Ministry of Finance - Indonesia
- White Energy Company Limited
- New Zealand Coal & Carbon
- Sakthi Sugars Limited - India
- South Luzon Thermal Energy Corporation
- Commonwealth Bank - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Cement Manufacturers Association - India
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Straits Asia Resources Limited - Singapore
- Indogreen Group - Indonesia
- Latin American Coal - Colombia
- Malabar Cements Ltd - India
- Romanian Commodities Exchange
- Indo Tambangraya Megah - Indonesia
- Riau Bara Harum - Indonesia
- Globalindo Alam Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Gujarat Mineral Development Corp Ltd - India
- ASAPP Information Group - India
- Billiton Holdings Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Posco Energy - South Korea
- Therma Luzon, Inc, Philippines
- Central Java Power - Indonesia
- Minerals Council of Australia
- Indika Energy - Indonesia
- Xindia Steels Limited - India
- Savvy Resources Ltd - HongKong
- Mercator Lines Limited - India
- Merrill Lynch Commodities Europe
- Jaiprakash Power Ventures ltd
- Trasteel International SA, Italy
- Planning Commission, India
- CNBM International Corporation - China
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