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