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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, 23 February 24
STRONG OUTLOOK FOR THE TANKER MARKET IN 2024 AND BEYOND - DNV
Several factors have aligned over the past two years to create a robust and profitable market for tanker owners, which is expected to drive newbuil ...
Friday, 23 February 24
AUSTRALIAN COAL FLOWS TO ASIA HOVER ABOVE LAST YEAR’S VOLUME TONNES - SIGNAL GROUP
In the final days of February, the dry bulk freight market appeared to maintain a relatively stable momentum, particularly evident in the large ves ...
Friday, 23 February 24
RUSSIAN COAL SHIPMENTS FALL 14% AS SANCTIONS BITE - BIMCO
During the first seven weeks of 2024, Russian coal shipments have fallen 14% y/y. Volumes have gradually declined since October 2023 when logistica ...
Thursday, 22 February 24
BIMCO PUBLISHES SHIP FINANCING FORMS TO ENSURE UNINTERRUPTED USE OF SHIPS
BIMCO has published two standard Quiet Enjoyment Letters (QELs), the first standard form QELs available to the industry, to offer a tool that can e ...
Monday, 19 February 24
METALS INVESTMENT: THE DARKEST HOUR IS JUST BEFORE THE DAWN - WOOD MACKENZIE
Things often seem at their worst just before they get better. In terms of meeting our net zero 2050 scenario, we’ve reached a watershed momen ...
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- Eastern Energy - Thailand
- SN Aboitiz Power Inc, Philippines
- Sakthi Sugars Limited - India
- Africa Commodities Group - South Africa
- Banpu Public Company Limited - Thailand
- Marubeni Corporation - India
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- Altura Mining Limited, Indonesia
- Global Green Power PLC Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Mintek Dendrill Indonesia
- GVK Power & Infra Limited - India
- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- Price Waterhouse Coopers - Russia
- Aboitiz Power Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- The State Trading Corporation of India Ltd
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Carbofer General Trading SA - India
- Independent Power Producers Association of India
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Orica Australia Pty. Ltd.
- Metalloyd Limited - United Kingdom
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Bulk Trading Sa - Switzerland
- Commonwealth Bank - Australia
- Mercator Lines Limited - India
- Deloitte Consulting - India
- Leighton Contractors Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Mjunction Services Limited - India
- The University of Queensland
- Siam City Cement PLC, Thailand
- Samtan Co., Ltd - South Korea
- Indo Tambangraya Megah - Indonesia
- Gujarat Sidhee Cement - India
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Coal Blending Company Limited - Australia
- CNBM International Corporation - China
- SMC Global Power, Philippines
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Edison Trading Spa - Italy
- GAC Shipping (India) Pvt Ltd
- Binh Thuan Hamico - Vietnam
- Kideco Jaya Agung - Indonesia
- Directorate Of Revenue Intelligence - India
- Sical Logistics Limited - India
- Orica Mining Services - Indonesia
- Singapore Mercantile Exchange
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- White Energy Company Limited
- Cement Manufacturers Association - India
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- Bahari Cakrawala Sebuku - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Central Electricity Authority - India
- Meralco Power Generation, Philippines
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Formosa Plastics Group - Taiwan
- MS Steel International - UAE
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Madhucon Powers Ltd - India
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- Posco Energy - South Korea
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indonesian Coal Mining Association
- Bangladesh Power Developement Board
- Jaiprakash Power Ventures ltd
- IHS Mccloskey Coal Group - USA
- AsiaOL BioFuels Corp., Philippines
- Timah Investasi Mineral - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Oldendorff Carriers - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dalmia Cement Bharat India
- Neyveli Lignite Corporation Ltd, - India
- Electricity Generating Authority of Thailand
- Vizag Seaport Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- Bukit Makmur.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- Parry Sugars Refinery, India
- Iligan Light & Power Inc, Philippines
- Larsen & Toubro Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Georgia Ports Authority, United States
- Holcim Trading Pte Ltd - Singapore
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Interocean Group of Companies - India
- Rashtriya Ispat Nigam Limited - India
- Bayan Resources Tbk. - Indonesia
- Karaikal Port Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- Energy Development Corp, Philippines
- Coal and Oil Company - UAE
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Baramulti Group, Indonesia
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Power Finance Corporation Ltd., India
- ASAPP Information Group - India
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Krishnapatnam Port Company Ltd. - India
- Vijayanagar Sugar Pvt Ltd - India
- Indogreen Group - Indonesia
- Videocon Industries ltd - India
- Planning Commission, India
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- India Bulls Power Limited - India
- Medco Energi Mining Internasional
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- Malabar Cements Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- Bhushan Steel Limited - India
- Latin American Coal - Colombia
- PTC India Limited - India
- ICICI Bank Limited - India
- Australian Coal Association
- Indian Oil Corporation Limited
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Xindia Steels Limited - India
- Parliament of New Zealand
- Indian Energy Exchange, India
- Kohat Cement Company Ltd. - Pakistan
- Essar Steel Hazira Ltd - India
- SMG Consultants - Indonesia
- Ind-Barath Power Infra Limited - India
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Siam City Cement - Thailand
- Energy Link Ltd, New Zealand
- Semirara Mining Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Kepco SPC Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Indika Energy - Indonesia
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- Ministry of Mines - Canada
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- European Bulk Services B.V. - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Minerals Council of Australia
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- IEA Clean Coal Centre - UK
- Bharathi Cement Corporation - India
- Global Business Power Corporation, Philippines
- The Treasury - Australian Government
- Economic Council, Georgia
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