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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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Thursday, 26 April 12
BUKIT ASAMS 1Q OPERATING PROFIT MARGIN HAS INCREASED BY 6% TO RP. 1 TRILLION
COALspot.com - PT. Bukit Asam (Persero), the Indonesia’s state owned coal miner's 1Q, 2012 revenue has increased by 31% to Rp. 3.02 trillion ...
Thursday, 26 April 12
TAIPOWER TO BUY 1.15 MILLION TONS OF 5000 GAR COAL
COALspot.com - Taiwan Power Company intends to procure 1.125million tons of sub-bituminous coal for Taipower thermal power plant through open tender ...
Thursday, 26 April 12
TAIPOWER TO BUY 375,000 MT OF 4800 GAR COAL
COALspot.com - Taiwan Power Company intends to procure 375,000 metric tons of low sulfur sub-bituminous coal for Taipower thermal power plant ...
Thursday, 26 April 12
ADK SHIPPED 28,000 TONNES OF COAL THIS MONTH
COALspot.com - Orpheus Energy (ASX:OEG) has announced that four coal barges carrying a total of approximately 28,000 tonnes of ADK (Alam Duta K ...
Thursday, 26 April 12
DRY BULK CARRIERS RENTER FLEET AFTER IDLING, ON MARKETS RECOVERY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market seems to be back on track, not only solidifying the gains of the past couple of weeks, but also racing to new heights, recuperra ...
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- Essar Steel Hazira Ltd - India
- Vedanta Resources Plc - India
- Banpu Public Company Limited - Thailand
- Electricity Authority, New Zealand
- Standard Chartered Bank - UAE
- Renaissance Capital - South Africa
- Salva Resources Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Ind-Barath Power Infra Limited - India
- Price Waterhouse Coopers - Russia
- Kalimantan Lumbung Energi - Indonesia
- Central Java Power - Indonesia
- Bangladesh Power Developement Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Australia Pty. Ltd.
- Rashtriya Ispat Nigam Limited - India
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- South Luzon Thermal Energy Corporation
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Krishnapatnam Port Company Ltd. - India
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- Mercator Lines Limited - India
- Chamber of Mines of South Africa
- Kideco Jaya Agung - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- Jaiprakash Power Ventures ltd
- London Commodity Brokers - England
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Merrill Lynch Commodities Europe
- Pipit Mutiara Jaya. PT, Indonesia
- Thai Mozambique Logistica
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Makarim & Taira - Indonesia
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- Holcim Trading Pte Ltd - Singapore
- Bulk Trading Sa - Switzerland
- McConnell Dowell - Australia
- Marubeni Corporation - India
- Sree Jayajothi Cements Limited - India
- Kumho Petrochemical, South Korea
- Larsen & Toubro Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Parry Sugars Refinery, India
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- Ministry of Mines - Canada
- Karbindo Abesyapradhi - Indoneisa
- Mercuria Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- SMG Consultants - Indonesia
- Metalloyd Limited - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- AsiaOL BioFuels Corp., Philippines
- Kohat Cement Company Ltd. - Pakistan
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Therma Luzon, Inc, Philippines
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- Gujarat Sidhee Cement - India
- Sojitz Corporation - Japan
- Antam Resourcindo - Indonesia
- Cement Manufacturers Association - India
- Economic Council, Georgia
- White Energy Company Limited
- Semirara Mining Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bhatia International Limited - India
- GAC Shipping (India) Pvt Ltd
- Kobexindo Tractors - Indoneisa
- Ministry of Transport, Egypt
- Binh Thuan Hamico - Vietnam
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Karaikal Port Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Electricity Generating Authority of Thailand
- Simpson Spence & Young - Indonesia
- Tata Chemicals Ltd - India
- Wood Mackenzie - Singapore
- Minerals Council of Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Timah Investasi Mineral - Indoneisa
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Wilmar Investment Holdings
- Intertek Mineral Services - Indonesia
- Bharathi Cement Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Grasim Industreis Ltd - India
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- Central Electricity Authority - India
- European Bulk Services B.V. - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Manunggal Multi Energi - Indonesia
- Power Finance Corporation Ltd., India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- PTC India Limited - India
- Thiess Contractors Indonesia
- Mintek Dendrill Indonesia
- Bhoruka Overseas - Indonesia
- Kepco SPC Power Corporation, Philippines
- Sical Logistics Limited - India
- Sindya Power Generating Company Private Ltd
- Aboitiz Power Corporation - Philippines
- Vizag Seaport Private Limited - India
- Baramulti Group, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Global Business Power Corporation, Philippines
- Latin American Coal - Colombia
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- Australian Commodity Traders Exchange
- Tamil Nadu electricity Board
- Maharashtra Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- SN Aboitiz Power Inc, Philippines
- San Jose City I Power Corp, Philippines
- Samtan Co., Ltd - South Korea
- Coal and Oil Company - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- SMC Global Power, Philippines
- Posco Energy - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Toyota Tsusho Corporation, Japan
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Heidelberg Cement - Germany
- New Zealand Coal & Carbon
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bayan Resources Tbk. - Indonesia
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- Jindal Steel & Power Ltd - India
- Indogreen Group - Indonesia
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Energy Link Ltd, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Directorate Of Revenue Intelligence - India
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- The University of Queensland
- Energy Development Corp, Philippines
- Lanco Infratech Ltd - India
- MS Steel International - UAE
- Australian Coal Association
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- Port Waratah Coal Services - Australia
- The State Trading Corporation of India Ltd
- Indian Energy Exchange, India
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- Trasteel International SA, Italy
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- CNBM International Corporation - China
- TeaM Sual Corporation - Philippines
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Indo Tambangraya Megah - Indonesia
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- Singapore Mercantile Exchange
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