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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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Tuesday, 15 May 12
POTENTIAL BOOM OF CHINAS COAL IMPORTS COULD PROVIDE FURTHER SUPPORT TO DRY BULK MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has been moving sideways during the past week with the industry’s benchmark, the Baltic Dry Index (BDI) losing 0.53% on th ...
Saturday, 12 May 12
THE SHIPPING MARKET IS UNLIKELY TO SEE A REBOUND ANYTIME SOON - VISTAAR SINGAPORE
COALspot.com - The BDI softened this week and it was down by 1.64 pct closing at 1,138 points.
The cape index was up by 2.41 pct closing at 1,61 ...
Friday, 11 May 12
POLITICAL CHANGES COULD LEAD TO TEMPORARY HALT IN SHIPPING INVESTMENTS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The potential of changes of political leadership in many of the world’s leading economies could very well lead to significant shifts in the di ...
Thursday, 10 May 12
DRY BULK ERRATIC ON LACK OF DIRECTION - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept up its erratic behavior as it went down again during yesterday’s session, on a lack of direct guidance in terms o ...
Wednesday, 09 May 12
COAL INDIA SIGNS FSAS WITH 13 POWER UNITS SO FAR - PTI
Press Trust of India has reported that, coal India has so far entered into fuel supply pacts with 13 power units, including Reliance Power's Rosa P ...
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- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- The State Trading Corporation of India Ltd
- Mjunction Services Limited - India
- Petron Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Sindya Power Generating Company Private Ltd
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Indonesian Coal Mining Association
- Altura Mining Limited, Indonesia
- Simpson Spence & Young - Indonesia
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- Directorate General of MIneral and Coal - Indonesia
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Baramulti Group, Indonesia
- Global Green Power PLC Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Deloitte Consulting - India
- Dalmia Cement Bharat India
- Bukit Makmur.PT - Indonesia
- SMC Global Power, Philippines
- Bulk Trading Sa - Switzerland
- Essar Steel Hazira Ltd - India
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- European Bulk Services B.V. - Netherlands
- Mintek Dendrill Indonesia
- Samtan Co., Ltd - South Korea
- Bukit Baiduri Energy - Indonesia
- Indogreen Group - Indonesia
- Energy Link Ltd, New Zealand
- Eastern Coal Council - USA
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Straits Asia Resources Limited - Singapore
- Krishnapatnam Port Company Ltd. - India
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- Antam Resourcindo - Indonesia
- Salva Resources Pvt Ltd - India
- The University of Queensland
- Kumho Petrochemical, South Korea
- Bayan Resources Tbk. - Indonesia
- Maheswari Brothers Coal Limited - India
- Kaltim Prima Coal - Indonesia
- Georgia Ports Authority, United States
- Coal and Oil Company - UAE
- Ind-Barath Power Infra Limited - India
- Agrawal Coal Company - India
- Renaissance Capital - South Africa
- Chettinad Cement Corporation Ltd - India
- PNOC Exploration Corporation - Philippines
- Anglo American - United Kingdom
- McConnell Dowell - Australia
- Kalimantan Lumbung Energi - Indonesia
- Formosa Plastics Group - Taiwan
- Alfred C Toepfer International GmbH - Germany
- Latin American Coal - Colombia
- Vijayanagar Sugar Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Indian Energy Exchange, India
- Therma Luzon, Inc, Philippines
- Semirara Mining Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- Kapuas Tunggal Persada - Indonesia
- The Treasury - Australian Government
- Semirara Mining and Power Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Africa Commodities Group - South Africa
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Orica Australia Pty. Ltd.
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- LBH Netherlands Bv - Netherlands
- Sojitz Corporation - Japan
- Jindal Steel & Power Ltd - India
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- Orica Mining Services - Indonesia
- Bharathi Cement Corporation - India
- ICICI Bank Limited - India
- Singapore Mercantile Exchange
- TeaM Sual Corporation - Philippines
- Videocon Industries ltd - India
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Marubeni Corporation - India
- Madhucon Powers Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Makarim & Taira - Indonesia
- Xindia Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- Sakthi Sugars Limited - India
- Australian Commodity Traders Exchange
- Port Waratah Coal Services - Australia
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Bukit Asam (Persero) Tbk - Indonesia
- Timah Investasi Mineral - Indoneisa
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Kohat Cement Company Ltd. - Pakistan
- Coalindo Energy - Indonesia
- Bhushan Steel Limited - India
- Parry Sugars Refinery, India
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- Indo Tambangraya Megah - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- South Luzon Thermal Energy Corporation
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Merrill Lynch Commodities Europe
- Electricity Authority, New Zealand
- Cement Manufacturers Association - India
- Metalloyd Limited - United Kingdom
- Coastal Gujarat Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Neyveli Lignite Corporation Ltd, - India
- Sree Jayajothi Cements Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- PTC India Limited - India
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Trasteel International SA, Italy
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- CIMB Investment Bank - Malaysia
- Bangladesh Power Developement Board
- Thiess Contractors Indonesia
- Central Electricity Authority - India
- GMR Energy Limited - India
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Eastern Energy - Thailand
- Tata Chemicals Ltd - India
- Minerals Council of Australia
- Indian Oil Corporation Limited
- VISA Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Malabar Cements Ltd - India
- GVK Power & Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- Parliament of New Zealand
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aditya Birla Group - India
- Attock Cement Pakistan Limited
- Price Waterhouse Coopers - Russia
- PowerSource Philippines DevCo
- SN Aboitiz Power Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Manunggal Multi Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- Borneo Indobara - Indonesia
- SMG Consultants - Indonesia
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- Ministry of Mines - Canada
- Rashtriya Ispat Nigam Limited - India
- Goldman Sachs - Singapore
- Ministry of Finance - Indonesia
- Meralco Power Generation, Philippines
- Thai Mozambique Logistica
- MS Steel International - UAE
- Miang Besar Coal Terminal - Indonesia
- Intertek Mineral Services - Indonesia
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