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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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Friday, 02 August 24
COAL MARKET DEVELOPMENTS: FALLING PRICES AMID RECORD-HIGH OUTPUT - WORLD BANK
Coal prices inched up in May (m/m) following an 8 percent decline in 2024Q1. The Australian and South African benchmarks have plummeted more ...
Friday, 26 July 24
FUELEU MARITME IS COMING. IS YOUR CHARTERPARTY READY? - GARD
With less than six months to implementation of FuelEU Maritime in EU and EEA trades, there has been little published advice regarding how to alloca ...
Thursday, 04 July 24
INDIA'S COAL PRODUCTION RISES 14% IN JUNE - PTI
The country’s coal production rose by 14.49% to 84.63 million tonne (MT) in June. The country’s coal output was 73.92 MT in June last f ...
Tuesday, 02 July 24
NTPC CAPTIVE COAL OUTPUT GROWS 15% IN Q1; DESPATCH RISES 17%
State-owned NTPC on Monday reported a 15 per cent year-on-year increase in the production of coal from captives mines to 9.862 metric million tonne ...
Friday, 28 June 24
KOSPO INVITED BIDS FOR 400,000 MT OF MINIMUM 4000 NCV COAL FOR FIVE YEARS
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for total 400,000 MT of Low Calorific Value Coal for 5 years starting from July 2024 until ...
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- Anglo American - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Sical Logistics Limited - India
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- The State Trading Corporation of India Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Global Business Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Indo Tambangraya Megah - Indonesia
- Xindia Steels Limited - India
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- Parliament of New Zealand
- Marubeni Corporation - India
- White Energy Company Limited
- Tamil Nadu electricity Board
- Medco Energi Mining Internasional
- Gujarat Mineral Development Corp Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Ministry of Finance - Indonesia
- Binh Thuan Hamico - Vietnam
- Wood Mackenzie - Singapore
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- Kepco SPC Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Madhucon Powers Ltd - India
- Africa Commodities Group - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Metalloyd Limited - United Kingdom
- Bangladesh Power Developement Board
- Coalindo Energy - Indonesia
- Eastern Energy - Thailand
- The Treasury - Australian Government
- Standard Chartered Bank - UAE
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- The University of Queensland
- Altura Mining Limited, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Bukit Baiduri Energy - Indonesia
- South Luzon Thermal Energy Corporation
- ASAPP Information Group - India
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- Pendopo Energi Batubara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jaiprakash Power Ventures ltd
- Videocon Industries ltd - India
- Straits Asia Resources Limited - Singapore
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- VISA Power Limited - India
- Globalindo Alam Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- CIMB Investment Bank - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Electricity Generating Authority of Thailand
- TeaM Sual Corporation - Philippines
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- SMC Global Power, Philippines
- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
- Ministry of Mines - Canada
- Therma Luzon, Inc, Philippines
- Sakthi Sugars Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Aboitiz Power Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Malabar Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- Karaikal Port Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Kumho Petrochemical, South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Siam City Cement PLC, Thailand
- Uttam Galva Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Australian Commodity Traders Exchange
- Directorate Of Revenue Intelligence - India
- Mercator Lines Limited - India
- Riau Bara Harum - Indonesia
- Electricity Authority, New Zealand
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Commonwealth Bank - Australia
- Iligan Light & Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Meralco Power Generation, Philippines
- Coastal Gujarat Power Limited - India
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- SN Aboitiz Power Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Parry Sugars Refinery, India
- Indonesian Coal Mining Association
- Power Finance Corporation Ltd., India
- Alfred C Toepfer International GmbH - Germany
- Bharathi Cement Corporation - India
- GMR Energy Limited - India
- Deloitte Consulting - India
- Gujarat Sidhee Cement - India
- Price Waterhouse Coopers - Russia
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Heidelberg Cement - Germany
- Maharashtra Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Central Java Power - Indonesia
- Vizag Seaport Private Limited - India
- LBH Netherlands Bv - Netherlands
- OPG Power Generation Pvt Ltd - India
- GVK Power & Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Singapore Mercantile Exchange
- San Jose City I Power Corp, Philippines
- Goldman Sachs - Singapore
- Merrill Lynch Commodities Europe
- Indian Oil Corporation Limited
- India Bulls Power Limited - India
- Kideco Jaya Agung - Indonesia
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Chamber of Mines of South Africa
- Aditya Birla Group - India
- Thai Mozambique Logistica
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- Billiton Holdings Pty Ltd - Australia
- MS Steel International - UAE
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- ICICI Bank Limited - India
- PetroVietnam Power Coal Import and Supply Company
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Minerals Council of Australia
- Port Waratah Coal Services - Australia
- Bukit Makmur.PT - Indonesia
- Ambuja Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Independent Power Producers Association of India
- Energy Development Corp, Philippines
- Georgia Ports Authority, United States
- Global Green Power PLC Corporation, Philippines
- Oldendorff Carriers - Singapore
- CNBM International Corporation - China
- Kartika Selabumi Mining - Indonesia
- Makarim & Taira - Indonesia
- PNOC Exploration Corporation - Philippines
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Manunggal Multi Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Orica Australia Pty. Ltd.
- Trasteel International SA, Italy
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Eastern Coal Council - USA
- Interocean Group of Companies - India
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