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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, 22 March 24
INDONESIA APPROVES 922.14 MLN T COAL PRODUCTION QUOTA FOR 2024, ABOVE TARGET - REUTERS
Indonesia has approved coal production quotas totalling 922.14 million metric tons for 2024, Bambang Suswantono, a senior official at the mining mi ...
Friday, 22 March 24
CHINA COAL INDUSTRY GROUP EXPECTS OUTPUT GROWTH TO SLOW IN 2024 - REUTERS
China’s coal output is expected to increase 36 million metric tons, or 0.8%, to about 4.7 billion tonnes in 2024, a Chinese coal industry gro ...
Monday, 18 March 24
THREE KEY TAKEAWAYS FROM OUR EUROPE GAS MARKETS SHORT-TERM OUTLOOK Q1 2024 - WOOD MACKENZIE
European gas prices are currently back to pre-crisis levels, but with a complex series of factors affecting future supply and demand, are they set ...
Wednesday, 06 March 24
INDONESIA AIMS TO FINISH MINING OUTPUT QUOTAS APPROVAL BY END-MARCH, OFFICIAL SAYS - REUTERS
Indonesia’s has approved the mining production quotarequests from more than 120mineral companies and aims to complete the approval process th ...
Monday, 04 March 24
IS YOUR GUARANTEE A GUARANTEE? NOTE TO SHIPOWNERS - GARD
KNOWLEDGE TO ELEVATE
The law of guarantees is not always obvious or easy to understand without proper guidance. This article clarifies the dif ...
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- European Bulk Services B.V. - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Coal and Oil Company - UAE
- Madhucon Powers Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Romanian Commodities Exchange
- GN Power Mariveles Coal Plant, Philippines
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Rio Tinto Coal - Australia
- Simpson Spence & Young - Indonesia
- Sree Jayajothi Cements Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- CNBM International Corporation - China
- Goldman Sachs - Singapore
- Pendopo Energi Batubara - Indonesia
- Electricity Authority, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Anglo American - United Kingdom
- Jaiprakash Power Ventures ltd
- Indogreen Group - Indonesia
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- The University of Queensland
- Minerals Council of Australia
- Bukit Baiduri Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Star Paper Mills Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Essar Steel Hazira Ltd - India
- Vizag Seaport Private Limited - India
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- Kumho Petrochemical, South Korea
- Xindia Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Transport, Egypt
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Rashtriya Ispat Nigam Limited - India
- VISA Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Sindya Power Generating Company Private Ltd
- Bharathi Cement Corporation - India
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- GAC Shipping (India) Pvt Ltd
- Sical Logistics Limited - India
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- McConnell Dowell - Australia
- IHS Mccloskey Coal Group - USA
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
- Kohat Cement Company Ltd. - Pakistan
- Sojitz Corporation - Japan
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Bangladesh Power Developement Board
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- Holcim Trading Pte Ltd - Singapore
- Singapore Mercantile Exchange
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- TeaM Sual Corporation - Philippines
- Malabar Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Central Java Power - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Coastal Gujarat Power Limited - India
- IEA Clean Coal Centre - UK
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Therma Luzon, Inc, Philippines
- Ministry of Finance - Indonesia
- Australian Commodity Traders Exchange
- Independent Power Producers Association of India
- Gujarat Mineral Development Corp Ltd - India
- Bhatia International Limited - India
- MS Steel International - UAE
- Siam City Cement - Thailand
- PowerSource Philippines DevCo
- Grasim Industreis Ltd - India
- Thiess Contractors Indonesia
- Lanco Infratech Ltd - India
- Wood Mackenzie - Singapore
- Toyota Tsusho Corporation, Japan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Trasteel International SA, Italy
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- White Energy Company Limited
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Karaikal Port Pvt Ltd - India
- Parry Sugars Refinery, India
- Larsen & Toubro Limited - India
- Posco Energy - South Korea
- Kideco Jaya Agung - Indonesia
- Tata Chemicals Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Directorate Of Revenue Intelligence - India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- Manunggal Multi Energi - Indonesia
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bhoruka Overseas - Indonesia
- Orica Mining Services - Indonesia
- Attock Cement Pakistan Limited
- Altura Mining Limited, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Wilmar Investment Holdings
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Barasentosa Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- Makarim & Taira - Indonesia
- Samtan Co., Ltd - South Korea
- Kaltim Prima Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Maheswari Brothers Coal Limited - India
- Deloitte Consulting - India
- PTC India Limited - India
- Metalloyd Limited - United Kingdom
- Sakthi Sugars Limited - India
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Cigading International Bulk Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- Meralco Power Generation, Philippines
- Indian Oil Corporation Limited
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Formosa Plastics Group - Taiwan
- Agrawal Coal Company - India
- Parliament of New Zealand
- Bukit Makmur.PT - Indonesia
- SMC Global Power, Philippines
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Coal Council - USA
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- Orica Australia Pty. Ltd.
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Jindal Steel & Power Ltd - India
- Australian Coal Association
- Siam City Cement PLC, Thailand
- Semirara Mining Corp, Philippines
- Vedanta Resources Plc - India
- Energy Link Ltd, New Zealand
- Chettinad Cement Corporation Ltd - India
- Global Business Power Corporation, Philippines
- The Treasury - Australian Government
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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