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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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Tuesday, 23 May 23
INDIA: COAL OUTPUT UP 8.9%, SUPPLY RISES 11.7% IN APRIL - FINANCIAL EXPRESS
India’s coal production jumped 8.85% to 73.14 million tonne (MT) in April 2023 and the total coal despatch during the month went up 11.66% to ...
Tuesday, 23 May 23
CHINA COAL OUTPUT UP 4.5 PCT IN APRIL - XINHUA
China’s raw coal output posted stable expansion in April, official data showed.
The country produced 380 million tonnes of raw ...
Saturday, 20 May 23
NON-OPEC OIL SUPPLY DEVELOPMENT - OPEC
In 2022, non-OPEC supply is estimated to have increased by 1.9 mb/d y-o-y. Out of this, US liquids production increased by 1.2 mb/d, mainly on the ...
Saturday, 20 May 23
GLOBAL COAL TRADE HAS REALLY PICKED UP PACE IN RECENT MONTHS, NOW FULLY BACK TO PRE-COVID LEVELS - BANCHERO COSTA
Global coal trade has really picked up pace in recent months, and is now fully back to pre-Covid levels. In Jan-Apr 2023, total global seaborne coa ...
Saturday, 20 May 23
MARKET INSIGHT - INTERMODAL
India is one of the world's largest coal producers and one of the world's largest importers of coal. The country uses coal mainly for power ...
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- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- Altura Mining Limited, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indian Energy Exchange, India
- Asmin Koalindo Tuhup - Indonesia
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Medco Energi Mining Internasional
- Price Waterhouse Coopers - Russia
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- Vizag Seaport Private Limited - India
- Ministry of Finance - Indonesia
- Sree Jayajothi Cements Limited - India
- Bulk Trading Sa - Switzerland
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- Eastern Energy - Thailand
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- Binh Thuan Hamico - Vietnam
- Parliament of New Zealand
- Energy Development Corp, Philippines
- Mjunction Services Limited - India
- Metalloyd Limited - United Kingdom
- Bangladesh Power Developement Board
- SMG Consultants - Indonesia
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- White Energy Company Limited
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Maheswari Brothers Coal Limited - India
- Mercator Lines Limited - India
- OPG Power Generation Pvt Ltd - India
- Sical Logistics Limited - India
- The Treasury - Australian Government
- Baramulti Group, Indonesia
- LBH Netherlands Bv - Netherlands
- Renaissance Capital - South Africa
- GAC Shipping (India) Pvt Ltd
- Karbindo Abesyapradhi - Indoneisa
- Orica Mining Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- Star Paper Mills Limited - India
- VISA Power Limited - India
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- Larsen & Toubro Limited - India
- Vedanta Resources Plc - India
- Siam City Cement PLC, Thailand
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Aditya Birla Group - India
- Independent Power Producers Association of India
- Essar Steel Hazira Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Anglo American - United Kingdom
- MS Steel International - UAE
- Kepco SPC Power Corporation, Philippines
- Coalindo Energy - Indonesia
- PTC India Limited - India
- Africa Commodities Group - South Africa
- Tata Chemicals Ltd - India
- Formosa Plastics Group - Taiwan
- Salva Resources Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- Siam City Cement - Thailand
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- Electricity Authority, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- India Bulls Power Limited - India
- Rio Tinto Coal - Australia
- Marubeni Corporation - India
- Sakthi Sugars Limited - India
- Indo Tambangraya Megah - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Cement Manufacturers Association - India
- Kobexindo Tractors - Indoneisa
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- New Zealand Coal & Carbon
- Grasim Industreis Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Makarim & Taira - Indonesia
- Bukit Makmur.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Iligan Light & Power Inc, Philippines
- Madhucon Powers Ltd - India
- Kaltim Prima Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- SMC Global Power, Philippines
- Attock Cement Pakistan Limited
- Bhushan Steel Limited - India
- Global Business Power Corporation, Philippines
- London Commodity Brokers - England
- Thiess Contractors Indonesia
- Ceylon Electricity Board - Sri Lanka
- The University of Queensland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CNBM International Corporation - China
- Deloitte Consulting - India
- ASAPP Information Group - India
- Toyota Tsusho Corporation, Japan
- Bukit Asam (Persero) Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Riau Bara Harum - Indonesia
- Ambuja Cements Ltd - India
- Romanian Commodities Exchange
- Savvy Resources Ltd - HongKong
- Indogreen Group - Indonesia
- Jindal Steel & Power Ltd - India
- Parry Sugars Refinery, India
- Borneo Indobara - Indonesia
- Orica Australia Pty. Ltd.
- Ministry of Transport, Egypt
- Indika Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Meralco Power Generation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Economic Council, Georgia
- Aboitiz Power Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Interocean Group of Companies - India
- Kideco Jaya Agung - Indonesia
- McConnell Dowell - Australia
- Power Finance Corporation Ltd., India
- Coastal Gujarat Power Limited - India
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- South Luzon Thermal Energy Corporation
- Heidelberg Cement - Germany
- Meenaskhi Energy Private Limited - India
- IHS Mccloskey Coal Group - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Carbofer General Trading SA - India
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- Bhatia International Limited - India
- Georgia Ports Authority, United States
- Central Java Power - Indonesia
- Petron Corporation, Philippines
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Dalmia Cement Bharat India
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- GVK Power & Infra Limited - India
- Sojitz Corporation - Japan
- Wilmar Investment Holdings
- Australian Commodity Traders Exchange
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- Australian Coal Association
- The State Trading Corporation of India Ltd
- Mintek Dendrill Indonesia
- GMR Energy Limited - India
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Alfred C Toepfer International GmbH - Germany
- Singapore Mercantile Exchange
- Therma Luzon, Inc, Philippines
- Agrawal Coal Company - India
- PowerSource Philippines DevCo
- Simpson Spence & Young - Indonesia
- Malabar Cements Ltd - India
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