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Friday, 09 March 12
MINING IN INDONESIA: RESTRICTION ON FOREIGN INVESTMENT - SUNIL K KUMBHAT
 COALspot.com - Recently Govt has passed regulation instructing foreign mining companies to reduce their ownership stake.
The regulation known as GR 24 of 2012 ( Amendment of GR 23 of 2010 ), signed by President of Indonesia on Feb. 21,2012 stipulates that foreign shareholders/ Companies must gradually divest 51 percent of their shares in local mining companies to local investors after the fifth year of commercial production and complete the divestment by the 10th year of production. The divestment regulation resulted from a revision to a earlier GR 23 of 2010 that required foreign shareholders in local mineral and coal mining companies to divest 20 percent of their holdings.
The Director general for minerals and coals, said the regulation would not directly apply to contracts made prior to the issuance of the regulation , but so far no clarification in writing.
Local investors were defined by the regulation as the:
1.Central government,
2.Provincial , regency or municipal governments,
3.State-owned enterprises,
4.Regional enterprises and
5.National private companies.
The disinvestment shares are to be offered to entities in the order of priority listed above by way of auction.
Under the new requirement, mining companies must divest a total of 20 percent of their foreign shares from 6th year of starting production, 30 percent by the seventh year, 37 percent by the eighth year, 44 percent by the ninth year and 51 percent by the 10th year.
Prior to the issueance of GR 24/2012 , Mining Licences (IUP's) could not be transferred or assigned from one entity to another but GR 24/2012 provides that an Mining Licence may be transferred to another entity on the basis that the transferor holds a minimum of 51% of the shares in the assignee.
It effectively means foreigners are going to lose control after 10 years. Mining Sector is a capital intensive, risky , Complicated and time consuming business to invest in. By passing regulation and forcing foreign companies to divest within a fixed time frame and drastically changing the mining regulations is likely to discourage the interest of potential foreign investors to invest in the Mining Sector.
Historically, major foreign backed mining projects in Indonesia have been developed under contract based concessions - Contracts of Work (CoW) and Coal Contracts of work( CCoW )- entered into directly with the Government. These contracts covered the life of the project and larger areas than the new licence regime and were seen as a more secure regime , having economic and fiscal terms agreed in a contract that formed a "special law" between the Government and the mining company. In broad perspective such major changes in Govt regulations and increasing uncertainty and shift in foreign investment policy in the mining sector may consequently impact investment interest in other sector also.
The government is currently renegotiating all its contracts with CoW / CCoW mining companies across the nation in compliance with provisions of the 2009 Minerals and Coal Law.
The regulation would act as a disincentive for mining companies as five years is too short period to begin divestment, given that firms typically had 8 to 10 years to repay bank loans. If they have to divest 51% within 10 years, they are not yet reaching the break-even point of their investment.
Indonesia ,southeast Asia’s largest economy contains some of the world’s richest mineral deposits, such as the Freeport-run Grasberg, the world’s largest gold mine, and its fast-growing mining sector accounts for about 10-11 percent of GDP. The new regulation is the latest government move to extract higher domestic profit from the vast mineral wealth in the world’s top exporter of thermal coal and other minerals like tin , nickel, copper , Bauxite etc. But the change in regulation may deter foreign investment in mining sector.
The 2009 mining law was aimed at boosting investment in mining and metals processing, but its supporting regulations have not gone down well with the industry, and new investors still face risks such as policy reversals, local community demands, a tortuous permit process and poor infrastructure.
The latest regulation stipulating foreign ownership in Indonesia’s mining industry is bound to upset foreign investors and cheer local companies. The ruling will limit foreign companies from owning more than 49 percent of some mines, potentially limiting investments in a fast-growing sector.
Under the new regulation, foreign holders/ Companies of mining licenses in Indonesia , will have to cut their stakes to 49 percent at most within 10 years of starting production. Many foreign investors have already expressed grave concerns over this new ruling, arguing that mining is a capital-intensive industry and requires a long payback period.
Under the new ruling, foreign owners’ coal and minerals assets would required to sell the shares to the central and regional governments, state-owned companies or local private companies. This is itself not new, but the new time frame means that investors will not have enough time to recoup their investments, let alone make a profit.
Any country and Indonesia in this particular issue has every right to dictate the terms and conditions for foreign investors who wish to invest in the country. Many other countries also protect their local businesses, and it is the government’s duty to ensure that its own citizens benefit from the nation’s natural wealth.
Foreign investors often take huge risks and invest billions of dollars before they see returns. Their risk-taking allows the mining sector to grow and develop; without them, the country will be worse off. They have a right to expect a reasonable return on their investment, too.
The regulation had been promulgated with good intentions to empower local companies and boost their involvement in the mining industry.
But a balance must be struck between the two goals: attracting foreign investments and ensuring local communities also benefit. By requiring foreign shareholders to sell their stakes in mining assets to local entities, the government is attempting to strike this balance. The key issue is proper calibration of risk and reward ,considering the law of the land.
In spite of the fact that Mining sector in Indonesia is overregulated and lot of uncertainties ,the mining sector will remain most hot sector and cannot be ignored. There is always cost of doing business in Indonesia.
By : Sunil K Kumbhat , Jodhpur( Rajasthan ) India
Views expressed herein are personal views of the author and not that of COALspot.com.
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Monday, 28 May 12
COAL EXPORTS ARE JUMPING HIGHER, BUT PRICES ARE FALLING LOWER
COALspot.com: Indonesia, the world largest coal exporter, shipped 31.86* million tons of coal in April 2012, compared to 30.64* million tons i ...
Sunday, 27 May 12
THE FREIGHT MARKET FROM INDONESIA TO INDIA WAS WEAK - VISTAAR
COALspot.com - The BDI continued to fall for the fourth straight week and the BDI fell by 9.38 pct this week closing at 1,034 points.
The Cape Si ...
Sunday, 27 May 12
INDONESIAN SUB-BITUMINOUS COAL SWAPS HEADING TO SOUTH DIRECTION
COALspot.com - Indonesian sub-bituminous coal swaps and CFR South China coal contracts for July deliveries have dropped this week by 5.43 percent an ...
Saturday, 26 May 12
DRY BULK SHIP OWNERS LOOKING TO CUT BACK ON TONNAGE SUPPLY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The oversupply of dry bulk carriers has been the most prominent problem in the market today, pushing down rates and ‘strangling’ profita ...
Thursday, 24 May 12
DRY BULK MARKET RETREATS ON LACK OF CHINA DEMAND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market retreated yesterday on the back of lower Chinese demand for commodities such as coal and iron ore, typically hauled by dry bulk ...
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- Vizag Seaport Private Limited - India
- Bukit Makmur.PT - Indonesia
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Xindia Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Kaltim Prima Coal - Indonesia
- Standard Chartered Bank - UAE
- Wilmar Investment Holdings
- Gujarat Mineral Development Corp Ltd - India
- Orica Australia Pty. Ltd.
- Singapore Mercantile Exchange
- Aboitiz Power Corporation - Philippines
- Marubeni Corporation - India
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- Energy Link Ltd, New Zealand
- SMC Global Power, Philippines
- Australian Coal Association
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- Formosa Plastics Group - Taiwan
- Kohat Cement Company Ltd. - Pakistan
- Indogreen Group - Indonesia
- Star Paper Mills Limited - India
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- Sical Logistics Limited - India
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- Deloitte Consulting - India
- Mercator Lines Limited - India
- London Commodity Brokers - England
- Heidelberg Cement - Germany
- Billiton Holdings Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Sinarmas Energy and Mining - Indonesia
- Ministry of Finance - Indonesia
- Indian Energy Exchange, India
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- Maheswari Brothers Coal Limited - India
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Parliament of New Zealand
- Electricity Authority, New Zealand
- CNBM International Corporation - China
- Aditya Birla Group - India
- Interocean Group of Companies - India
- Binh Thuan Hamico - Vietnam
- Larsen & Toubro Limited - India
- Kalimantan Lumbung Energi - Indonesia
- IEA Clean Coal Centre - UK
- Romanian Commodities Exchange
- Sindya Power Generating Company Private Ltd
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- Planning Commission, India
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- Petrochimia International Co. Ltd.- Taiwan
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- Sree Jayajothi Cements Limited - India
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Energy Development Corp, Philippines
- San Jose City I Power Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- GVK Power & Infra Limited - India
- The Treasury - Australian Government
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- The University of Queensland
- Trasteel International SA, Italy
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Indika Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- Goldman Sachs - Singapore
- Jindal Steel & Power Ltd - India
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Bhushan Steel Limited - India
- Uttam Galva Steels Limited - India
- Bulk Trading Sa - Switzerland
- Africa Commodities Group - South Africa
- New Zealand Coal & Carbon
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Agrawal Coal Company - India
- International Coal Ventures Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- AsiaOL BioFuels Corp., Philippines
- Kideco Jaya Agung - Indonesia
- Indian Oil Corporation Limited
- Pendopo Energi Batubara - Indonesia
- India Bulls Power Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- European Bulk Services B.V. - Netherlands
- Bhoruka Overseas - Indonesia
- MS Steel International - UAE
- PetroVietnam Power Coal Import and Supply Company
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- ICICI Bank Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meenaskhi Energy Private Limited - India
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Miang Besar Coal Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- PNOC Exploration Corporation - Philippines
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- GAC Shipping (India) Pvt Ltd
- Coalindo Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Thai Mozambique Logistica
- Tamil Nadu electricity Board
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Global Coal Blending Company Limited - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Globalindo Alam Lestari - Indonesia
- GMR Energy Limited - India
- TeaM Sual Corporation - Philippines
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- Karaikal Port Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- PTC India Limited - India
- Savvy Resources Ltd - HongKong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- Riau Bara Harum - Indonesia
- Gujarat Sidhee Cement - India
- Petron Corporation, Philippines
- Mercuria Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- Global Business Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- Samtan Co., Ltd - South Korea
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Banpu Public Company Limited - Thailand
- Wood Mackenzie - Singapore
- Latin American Coal - Colombia
- Bharathi Cement Corporation - India
- Siam City Cement - Thailand
- IHS Mccloskey Coal Group - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Essar Steel Hazira Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- Rio Tinto Coal - Australia
- ASAPP Information Group - India
- Medco Energi Mining Internasional
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Economic Council, Georgia
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