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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, 08 May 12
DRY BULK MARKET LOOKING FOR NEW DIRECTION THIS WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the BDI (Baltic Dry Index) the main benchmark of the dry bulk shipping industry not traded at the start of this week, traders, charterers and s ...
Monday, 07 May 12
INDONESIAN HBA FALL AGAIN IN MAY 2012
COALspot.com - Indonesian HBA fall again to lowest level since January 2011 in May 2012. The monthly coal reference price for coal sales in Ma ...
Sunday, 06 May 12
INDONESIAN SUB-BITUMINOUS COAL & CFR SOUTH CHINA SWAPS SLIGHTLY DROP THIS WEEK
COALspot.com - Indonesian sub-bituminous coal swaps and CFR South China coal contracts for June deliveries slightly dropped this week.
According ...
Sunday, 06 May 12
S7 & S8 ROUTES LIKELY TO BE FIRM NEXT WEEK VISTAAR SINGAPORE
COALspot.com - The BDI remained flat this week and was up just by 1 point closing at 1,157 points.
The cape size index was up by 5.14 pct closing ...
Sunday, 06 May 12
EXPORT DUTY ON MINERAL FINALLY TO BECOME EFFECTIVE NEXT WEEK
COALspot.com - Mineral ore exporters of Indonesia ( only IUP holders) are required to obtain recommendation letter from the energy and mineral ...
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- Romanian Commodities Exchange
- Mercator Lines Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bhatia International Limited - India
- Larsen & Toubro Limited - India
- Sarangani Energy Corporation, Philippines
- GMR Energy Limited - India
- Globalindo Alam Lestari - Indonesia
- Indonesian Coal Mining Association
- Indo Tambangraya Megah - Indonesia
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- Rio Tinto Coal - Australia
- PTC India Limited - India
- ICICI Bank Limited - India
- Bangladesh Power Developement Board
- Ind-Barath Power Infra Limited - India
- Parliament of New Zealand
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- CIMB Investment Bank - Malaysia
- The Treasury - Australian Government
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- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Edison Trading Spa - Italy
- McConnell Dowell - Australia
- Orica Mining Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SN Aboitiz Power Inc, Philippines
- Baramulti Group, Indonesia
- Eastern Coal Council - USA
- Kideco Jaya Agung - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Barasentosa Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Siam City Cement - Thailand
- Meenaskhi Energy Private Limited - India
- Goldman Sachs - Singapore
- Bukit Baiduri Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- Directorate General of MIneral and Coal - Indonesia
- PowerSource Philippines DevCo
- Gujarat Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Power Finance Corporation Ltd., India
- Wilmar Investment Holdings
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Makarim & Taira - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Merrill Lynch Commodities Europe
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- Dalmia Cement Bharat India
- Samtan Co., Ltd - South Korea
- MS Steel International - UAE
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Tata Chemicals Ltd - India
- Mjunction Services Limited - India
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Commonwealth Bank - Australia
- Ceylon Electricity Board - Sri Lanka
- Ambuja Cements Ltd - India
- Price Waterhouse Coopers - Russia
- Simpson Spence & Young - Indonesia
- Petron Corporation, Philippines
- Anglo American - United Kingdom
- Kaltim Prima Coal - Indonesia
- Economic Council, Georgia
- Intertek Mineral Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Kumho Petrochemical, South Korea
- Central Java Power - Indonesia
- White Energy Company Limited
- Bahari Cakrawala Sebuku - Indonesia
- Kartika Selabumi Mining - Indonesia
- Bharathi Cement Corporation - India
- Ministry of Finance - Indonesia
- South Luzon Thermal Energy Corporation
- Meralco Power Generation, Philippines
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- Madhucon Powers Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- New Zealand Coal & Carbon
- ASAPP Information Group - India
- Banpu Public Company Limited - Thailand
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Attock Cement Pakistan Limited
- Eastern Energy - Thailand
- Borneo Indobara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Authority, New Zealand
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- SMC Global Power, Philippines
- Sindya Power Generating Company Private Ltd
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Electricity Generating Authority of Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Agrawal Coal Company - India
- Indian Energy Exchange, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Planning Commission, India
- Australian Commodity Traders Exchange
- Maharashtra Electricity Regulatory Commission - India
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Global Green Power PLC Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- TeaM Sual Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- IHS Mccloskey Coal Group - USA
- Latin American Coal - Colombia
- Kobexindo Tractors - Indoneisa
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- Ministry of Transport, Egypt
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Coal and Oil Company - UAE
- CNBM International Corporation - China
- Billiton Holdings Pty Ltd - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IEA Clean Coal Centre - UK
- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Videocon Industries ltd - India
- Savvy Resources Ltd - HongKong
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- Holcim Trading Pte Ltd - Singapore
- Medco Energi Mining Internasional
- Xindia Steels Limited - India
- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Deloitte Consulting - India
- Parry Sugars Refinery, India
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Sical Logistics Limited - India
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Metalloyd Limited - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- Star Paper Mills Limited - India
- Energy Link Ltd, New Zealand
- International Coal Ventures Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Thai Mozambique Logistica
- Chamber of Mines of South Africa
- Kohat Cement Company Ltd. - Pakistan
- Bulk Trading Sa - Switzerland
- San Jose City I Power Corp, Philippines
- The University of Queensland
- Grasim Industreis Ltd - India
- The State Trading Corporation of India Ltd
- Trasteel International SA, Italy
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Sinarmas Energy and Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Binh Thuan Hamico - Vietnam
- Toyota Tsusho Corporation, Japan
- Lanco Infratech Ltd - India
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