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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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Friday, 18 May 12
EXPORT TAX WILL ERODE PROFITS, INDONESIAN COAL EXEC COMPLAINS - THE JAKARTA GLOBE
The Jakarta Globe reported that, A 20 percent export duty the government has imposed on 14 mineral ore products will not only take a toll on mining ...
Friday, 18 May 12
KOREA EAST WEST POWER LOOKING FOR TOTAL 2.6 MILLION TONS OF 4600 NAR COAL AT FIXED PRICE FOR 5 YEARS
COALspot.com - Korea East West Power Co., Ltd is inviting bids to supply of 520,000 Metric Tons (per annum) of minimum 4,600 kcal/kg coal of N ...
Friday, 18 May 12
NICKEL ORE CARGOES ARE NOT SEEN IN MARKET ANYMORE DUE TO ON-GOING INDONESIAN BAN - FEARNLEYS AS
Handy
The market remained variable.
Fronthaul voyages both from Baltic and Black Sea paid over USD 18k/day. From USG to Cont tonnage would get ...
Thursday, 17 May 12
COAL MINERS OPPOSE EXPORT TAX, SUGGEST OUTPUT QUOTA - THE JAKARTA POST
The Jakarta Post reported that, coal miners have suggested that the government apply a production quota instead of implementing an export tax in ord ...
Thursday, 17 May 12
DRY BULK MARKET STILL LOOKING FOR NEW DIRECTION - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept on moving sideways during this week, with the mixed performance across all segments. Yesterday, the industry’s be ...
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- Savvy Resources Ltd - HongKong
- GAC Shipping (India) Pvt Ltd
- Aditya Birla Group - India
- Trasteel International SA, Italy
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- SN Aboitiz Power Inc, Philippines
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Baramulti Group, Indonesia
- Barasentosa Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- The State Trading Corporation of India Ltd
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- VISA Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Deloitte Consulting - India
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- Straits Asia Resources Limited - Singapore
- Power Finance Corporation Ltd., India
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Miang Besar Coal Terminal - Indonesia
- Energy Development Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- GN Power Mariveles Coal Plant, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- Billiton Holdings Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
- Merrill Lynch Commodities Europe
- Renaissance Capital - South Africa
- Ind-Barath Power Infra Limited - India
- White Energy Company Limited
- Gujarat Sidhee Cement - India
- McConnell Dowell - Australia
- Kalimantan Lumbung Energi - Indonesia
- Meralco Power Generation, Philippines
- Salva Resources Pvt Ltd - India
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- Goldman Sachs - Singapore
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Kapuas Tunggal Persada - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Leighton Contractors Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Siam City Cement - Thailand
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Ministry of Finance - Indonesia
- Standard Chartered Bank - UAE
- Mercator Lines Limited - India
- Tata Chemicals Ltd - India
- International Coal Ventures Pvt Ltd - India
- IEA Clean Coal Centre - UK
- PTC India Limited - India
- Indian Energy Exchange, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- Videocon Industries ltd - India
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- Electricity Generating Authority of Thailand
- Planning Commission, India
- Bhoruka Overseas - Indonesia
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Bukit Baiduri Energy - Indonesia
- Energy Link Ltd, New Zealand
- Gujarat Mineral Development Corp Ltd - India
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Intertek Mineral Services - Indonesia
- Australian Commodity Traders Exchange
- PetroVietnam Power Coal Import and Supply Company
- Sindya Power Generating Company Private Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- India Bulls Power Limited - India
- Kideco Jaya Agung - Indonesia
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- Australian Coal Association
- Ministry of Mines - Canada
- Bukit Asam (Persero) Tbk - Indonesia
- Kartika Selabumi Mining - Indonesia
- Chamber of Mines of South Africa
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Wood Mackenzie - Singapore
- Petron Corporation, Philippines
- Medco Energi Mining Internasional
- ICICI Bank Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bhushan Steel Limited - India
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- Riau Bara Harum - Indonesia
- Heidelberg Cement - Germany
- Thai Mozambique Logistica
- Krishnapatnam Port Company Ltd. - India
- Lanco Infratech Ltd - India
- Jaiprakash Power Ventures ltd
- Larsen & Toubro Limited - India
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- Carbofer General Trading SA - India
- Altura Mining Limited, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- Africa Commodities Group - South Africa
- Therma Luzon, Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
- Indo Tambangraya Megah - Indonesia
- Maheswari Brothers Coal Limited - India
- Metalloyd Limited - United Kingdom
- Georgia Ports Authority, United States
- Indian Oil Corporation Limited
- Asmin Koalindo Tuhup - Indonesia
- Indogreen Group - Indonesia
- Vizag Seaport Private Limited - India
- Indika Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- SMG Consultants - Indonesia
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Coalindo Energy - Indonesia
- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- Borneo Indobara - Indonesia
- Agrawal Coal Company - India
- ASAPP Information Group - India
- Tamil Nadu electricity Board
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- Wilmar Investment Holdings
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Chettinad Cement Corporation Ltd - India
- Grasim Industreis Ltd - India
- Bulk Trading Sa - Switzerland
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Ambuja Cements Ltd - India
- Posco Energy - South Korea
- Minerals Council of Australia
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Port Waratah Coal Services - Australia
- Makarim & Taira - Indonesia
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- Kepco SPC Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- San Jose City I Power Corp, Philippines
- Essar Steel Hazira Ltd - India
- Ministry of Transport, Egypt
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- Binh Thuan Hamico - Vietnam
- Sical Logistics Limited - India
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