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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, 16 April 23
CHINA JUGGLES FOUR MAJOR ECONOMIC CHANGES IN 2023 - WOOD MACKENZIE
Change is afoot in China. Economic growth is slowing, while rising political tensions between China and the US, coupled with global supply chain re ...
Sunday, 16 April 23
CHINA'S MARCH COAL IMPORTS JUMP TO 3-YEAR HIGH - REUTERS
China’s coal imports surged in March to their highest in any month over the past three years as utilities increased purchases on expectations ...
Sunday, 16 April 23
OPEC KEEPS WORLD OIL DEMAND GROWTH OUTLOOK UNCHANGED
The OPEC Reference Basket (ORB) declined in March by $3.43, or 4.2%, m-o-m to average $78.45/b. The ICE Brent first-month contract fell by $4.33, o ...
Sunday, 16 April 23
CHEAPER SPOT LNG PRICES TEMPT SOME ASIAN BUYERS AMID SUPPLY GAINS - REUTERS
Cheaper spot prices for liquefied natural gas (LNG) are luring price-sensitive buyers back in Asia, with China and India recording rising imports i ...
Tuesday, 11 April 23
COAL USE CLIMBS WORLDWIDE DESPITE PROMISES TO SLASH IT - AAP
The burning of coal for electricity, cement, steel and other uses went up in 2022 despite global promises to phase down the fuel that is the bigges ...
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- Karaikal Port Pvt Ltd - India
- ASAPP Information Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Interocean Group of Companies - India
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Videocon Industries ltd - India
- Vizag Seaport Private Limited - India
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- Romanian Commodities Exchange
- South Luzon Thermal Energy Corporation
- Bhatia International Limited - India
- Goldman Sachs - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Makarim & Taira - Indonesia
- Bhoruka Overseas - Indonesia
- Indian Energy Exchange, India
- Savvy Resources Ltd - HongKong
- Georgia Ports Authority, United States
- Asmin Koalindo Tuhup - Indonesia
- London Commodity Brokers - England
- SMC Global Power, Philippines
- ICICI Bank Limited - India
- Sinarmas Energy and Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- The State Trading Corporation of India Ltd
- Grasim Industreis Ltd - India
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Krishnapatnam Port Company Ltd. - India
- Sical Logistics Limited - India
- Economic Council, Georgia
- Indian Oil Corporation Limited
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- Mercator Lines Limited - India
- Iligan Light & Power Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Therma Luzon, Inc, Philippines
- Commonwealth Bank - Australia
- Vedanta Resources Plc - India
- Jaiprakash Power Ventures ltd
- Attock Cement Pakistan Limited
- Bukit Makmur.PT - Indonesia
- Tamil Nadu electricity Board
- Meenaskhi Energy Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Lanco Infratech Ltd - India
- Indo Tambangraya Megah - Indonesia
- Orica Australia Pty. Ltd.
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- MS Steel International - UAE
- McConnell Dowell - Australia
- Barasentosa Lestari - Indonesia
- Rio Tinto Coal - Australia
- Price Waterhouse Coopers - Russia
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- Directorate Of Revenue Intelligence - India
- Salva Resources Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Minerals Council of Australia
- Posco Energy - South Korea
- Semirara Mining and Power Corporation, Philippines
- Electricity Authority, New Zealand
- Essar Steel Hazira Ltd - India
- Sindya Power Generating Company Private Ltd
- Wood Mackenzie - Singapore
- VISA Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- CIMB Investment Bank - Malaysia
- Bharathi Cement Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Standard Chartered Bank - UAE
- Baramulti Group, Indonesia
- Ministry of Transport, Egypt
- Sree Jayajothi Cements Limited - India
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- The University of Queensland
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Aboitiz Power Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Heidelberg Cement - Germany
- Oldendorff Carriers - Singapore
- GMR Energy Limited - India
- Meralco Power Generation, Philippines
- Kideco Jaya Agung - Indonesia
- Kumho Petrochemical, South Korea
- Central Java Power - Indonesia
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Gujarat Sidhee Cement - India
- Maharashtra Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- PTC India Limited - India
- Sakthi Sugars Limited - India
- Intertek Mineral Services - Indonesia
- Mjunction Services Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Merrill Lynch Commodities Europe
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- Siam City Cement PLC, Thailand
- Agrawal Coal Company - India
- Global Green Power PLC Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercuria Energy - Indonesia
- Malabar Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Central Electricity Authority - India
- Ambuja Cements Ltd - India
- Petron Corporation, Philippines
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Finance - Indonesia
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Tata Chemicals Ltd - India
- Sarangani Energy Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- IEA Clean Coal Centre - UK
- Marubeni Corporation - India
- Planning Commission, India
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Larsen & Toubro Limited - India
- Manunggal Multi Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- Metalloyd Limited - United Kingdom
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Altura Mining Limited, Indonesia
- TeaM Sual Corporation - Philippines
- Port Waratah Coal Services - Australia
- Pendopo Energi Batubara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Alfred C Toepfer International GmbH - Germany
- PowerSource Philippines DevCo
- Xindia Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Dalmia Cement Bharat India
- Siam City Cement - Thailand
- Star Paper Mills Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- Parliament of New Zealand
- Latin American Coal - Colombia
- India Bulls Power Limited - India
- PNOC Exploration Corporation - Philippines
- Power Finance Corporation Ltd., India
- Ceylon Electricity Board - Sri Lanka
- SMG Consultants - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- Global Business Power Corporation, Philippines
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Mintek Dendrill Indonesia
- Borneo Indobara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- SN Aboitiz Power Inc, Philippines
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Formosa Plastics Group - Taiwan
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