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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, 13 February 24
WHAT IS THE OUTLOOK FOR THE NATURAL GAS SPOT PRICE IN 2024 AND 2025? EIA
We expect the U.S. benchmark Henry Hub natural gas spot price to average higher in 2024 and 2025 than in 2023, but to remain lower than $3.00 per m ...
Monday, 12 February 24
US THERMAL COAL EXPORTS HIT 5-YEAR HIGHS AND TOP $5 BLN IN 2023 - REUTERS
United States exporters of thermal coal earned more than $5 billion in 2023 as they shipped out more than 32.5 million metric tons of the high-poll ...
Tuesday, 06 February 24
NEW E-FUELS PROJECT TO MAKE INTERNATIONAL SHIPPING CLIMATE-NEUTRAL - RINA
Transport and trade on the ocean blue must be made much greener. This is the goal of the new €17 million European GAMMA project, where compani ...
Tuesday, 06 February 24
INDIA SEES ANNUAL COAL OUTPUT UP 10.9% IN 2024/25 - REUTERS
India expects domestic coal output to increase by 10.9% to 1.13 billion metric tons in the fiscal year ending March 2025, a senior government offic ...
Tuesday, 06 February 24
INDIA'S COAL PRODUCTION INCREASES BY 10.3% TO 99.73 MILLION TONNE IN JANUARY - PTI
The country’s coal output rose 10.3 per cent to 99.73 Million Tonne (MT) in January, over the same month in the previous fiscal.
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- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
- CNBM International Corporation - China
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Orica Australia Pty. Ltd.
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- Sojitz Corporation - Japan
- MS Steel International - UAE
- Bhushan Steel Limited - India
- Leighton Contractors Pty Ltd - Australia
- Bhatia International Limited - India
- OPG Power Generation Pvt Ltd - India
- Madhucon Powers Ltd - India
- Wood Mackenzie - Singapore
- The State Trading Corporation of India Ltd
- Global Business Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Therma Luzon, Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- Sarangani Energy Corporation, Philippines
- Videocon Industries ltd - India
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Indogreen Group - Indonesia
- Kartika Selabumi Mining - Indonesia
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Banpu Public Company Limited - Thailand
- Minerals Council of Australia
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- GVK Power & Infra Limited - India
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- Goldman Sachs - Singapore
- Mintek Dendrill Indonesia
- Riau Bara Harum - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Semirara Mining and Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- ASAPP Information Group - India
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- Indian Energy Exchange, India
- Baramulti Group, Indonesia
- Antam Resourcindo - Indonesia
- Kapuas Tunggal Persada - Indonesia
- LBH Netherlands Bv - Netherlands
- Mjunction Services Limited - India
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Coalindo Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- Thai Mozambique Logistica
- Indo Tambangraya Megah - Indonesia
- Malabar Cements Ltd - India
- Electricity Generating Authority of Thailand
- Cigading International Bulk Terminal - Indonesia
- SMC Global Power, Philippines
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- SMG Consultants - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- ICICI Bank Limited - India
- Formosa Plastics Group - Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Attock Cement Pakistan Limited
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Commonwealth Bank - Australia
- Maharashtra Electricity Regulatory Commission - India
- Petron Corporation, Philippines
- White Energy Company Limited
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- Kalimantan Lumbung Energi - Indonesia
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- PowerSource Philippines DevCo
- Australian Commodity Traders Exchange
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- Energy Link Ltd, New Zealand
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Global Green Power PLC Corporation, Philippines
- Wilmar Investment Holdings
- Billiton Holdings Pty Ltd - Australia
- Parliament of New Zealand
- Anglo American - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Directorate Of Revenue Intelligence - India
- Jaiprakash Power Ventures ltd
- The Treasury - Australian Government
- Agrawal Coal Company - India
- Dalmia Cement Bharat India
- Economic Council, Georgia
- Coastal Gujarat Power Limited - India
- Thiess Contractors Indonesia
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Tamil Nadu electricity Board
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- Aditya Birla Group - India
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- Marubeni Corporation - India
- Independent Power Producers Association of India
- Toyota Tsusho Corporation, Japan
- Bulk Trading Sa - Switzerland
- Manunggal Multi Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Latin American Coal - Colombia
- Power Finance Corporation Ltd., India
- Rashtriya Ispat Nigam Limited - India
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Jindal Steel & Power Ltd - India
- Medco Energi Mining Internasional
- Ind-Barath Power Infra Limited - India
- Lanco Infratech Ltd - India
- PNOC Exploration Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Mines - Canada
- CIMB Investment Bank - Malaysia
- Metalloyd Limited - United Kingdom
- Sindya Power Generating Company Private Ltd
- Vizag Seaport Private Limited - India
- Chettinad Cement Corporation Ltd - India
- Parry Sugars Refinery, India
- Edison Trading Spa - Italy
- Uttam Galva Steels Limited - India
- Ambuja Cements Ltd - India
- Eastern Energy - Thailand
- Rio Tinto Coal - Australia
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Indian Oil Corporation Limited
- Central Electricity Authority - India
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Electricity Authority, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Asmin Koalindo Tuhup - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Kideco Jaya Agung - Indonesia
- Coal and Oil Company - UAE
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Energy Development Corp, Philippines
- Heidelberg Cement - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- Carbofer General Trading SA - India
- Petrochimia International Co. Ltd.- Taiwan
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- Simpson Spence & Young - Indonesia
- Makarim & Taira - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Borneo Indobara - Indonesia
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