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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, 04 May 12
DEMOLITION KEY FOR DRY BULK MARKET RECOVERY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The overflow of newbuilding vessels which “spilled over” into 2012 from 2011 brought the dry bulk market to a near collapse level at the ...
Thursday, 03 May 12
DRY BULK MARKET REMAINS INACTIVE, POSTING MILD DECREASE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept retreating this week, although at a very low pace, on the back of a lull in demand. The industry's benchmark, th ...
Thursday, 03 May 12
MINERS DEMAND LEGAL CERTAINTY ON PRE-BAN INTERIM POLICY - THE JAKARTA POST
The Jakarta Post reported that, Mining companies represented by the Indonesian Mining Association (IMA) welcomed the government’s plan to impo ...
Thursday, 03 May 12
HANDY EAST COAST INDIA - CHINA AROUND USD 7000 - FEARNLEYS AS
Handy - Stable demand in the Atlantic offered good rates for the tonnage.
USG/Cont was worth USD 17500 and more. Baltic and Black Sea appeared to ...
Wednesday, 02 May 12
CHINA BLACKOUTS HIGHLIGHT PRICING POLICY WEAKNESS - FITCH
Fitch reported that, the likelihood of further electricity blackouts in China this summer underlines Fitch's view of the basic problem f ...
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- Samtan Co., Ltd - South Korea
- Ambuja Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- Binh Thuan Hamico - Vietnam
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Madhucon Powers Ltd - India
- IEA Clean Coal Centre - UK
- Dalmia Cement Bharat India
- Toyota Tsusho Corporation, Japan
- ASAPP Information Group - India
- Renaissance Capital - South Africa
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- Bulk Trading Sa - Switzerland
- Marubeni Corporation - India
- Global Business Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- ICICI Bank Limited - India
- Sojitz Corporation - Japan
- Aditya Birla Group - India
- GMR Energy Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Africa Commodities Group - South Africa
- Oldendorff Carriers - Singapore
- Larsen & Toubro Limited - India
- Star Paper Mills Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- McConnell Dowell - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement - Thailand
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- Wilmar Investment Holdings
- Metalloyd Limited - United Kingdom
- Bangladesh Power Developement Board
- Mintek Dendrill Indonesia
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Antam Resourcindo - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Manunggal Multi Energi - Indonesia
- Uttam Galva Steels Limited - India
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- Minerals Council of Australia
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Agrawal Coal Company - India
- Mercator Lines Limited - India
- Trasteel International SA, Italy
- PNOC Exploration Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kapuas Tunggal Persada - Indonesia
- Planning Commission, India
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Indonesian Coal Mining Association
- Bahari Cakrawala Sebuku - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Vijayanagar Sugar Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Heidelberg Cement - Germany
- Petron Corporation, Philippines
- Ministry of Finance - Indonesia
- Kobexindo Tractors - Indoneisa
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- Thai Mozambique Logistica
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- SMG Consultants - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- The Treasury - Australian Government
- Jorong Barutama Greston.PT - Indonesia
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Vedanta Resources Plc - India
- Anglo American - United Kingdom
- CNBM International Corporation - China
- The University of Queensland
- Parry Sugars Refinery, India
- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Eastern Coal Council - USA
- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- Deloitte Consulting - India
- Kumho Petrochemical, South Korea
- San Jose City I Power Corp, Philippines
- MS Steel International - UAE
- International Coal Ventures Pvt Ltd - India
- Standard Chartered Bank - UAE
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- TeaM Sual Corporation - Philippines
- Borneo Indobara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Georgia Ports Authority, United States
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- Tamil Nadu electricity Board
- Mercuria Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- Simpson Spence & Young - Indonesia
- Port Waratah Coal Services - Australia
- Therma Luzon, Inc, Philippines
- Semirara Mining Corp, Philippines
- Wood Mackenzie - Singapore
- Global Coal Blending Company Limited - Australia
- Energy Link Ltd, New Zealand
- White Energy Company Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Lanco Infratech Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Edison Trading Spa - Italy
- Orica Australia Pty. Ltd.
- Bukit Asam (Persero) Tbk - Indonesia
- Bukit Makmur.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Malabar Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Latin American Coal - Colombia
- Siam City Cement PLC, Thailand
- Posco Energy - South Korea
- Coalindo Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Coal and Oil Company - UAE
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- Tata Chemicals Ltd - India
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Central Electricity Authority - India
- European Bulk Services B.V. - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Romanian Commodities Exchange
- Indo Tambangraya Megah - Indonesia
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
- Ministry of Mines - Canada
- Sinarmas Energy and Mining - Indonesia
- Carbofer General Trading SA - India
- Krishnapatnam Port Company Ltd. - India
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- Kepco SPC Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- The State Trading Corporation of India Ltd
- Kideco Jaya Agung - Indonesia
- PTC India Limited - India
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Formosa Plastics Group - Taiwan
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Cement Manufacturers Association - India
- Miang Besar Coal Terminal - Indonesia
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Medco Energi Mining Internasional
- SN Aboitiz Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Sakthi Sugars Limited - India
- Kartika Selabumi Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- GAC Shipping (India) Pvt Ltd
- Sindya Power Generating Company Private Ltd
- Energy Development Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Eastern Energy - Thailand
- Xindia Steels Limited - India
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