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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, 06 April 12
DRY BULK MARKET SWIFT TO HALT FALL ON RENEWED DEMAND FOR CAPESIZES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk managed to put a stop to the recent falls, which came as a result of a lacklustre demand for smaller vessel sizes. Although this trend ...
Thursday, 05 April 12
COAL EXPORT TAX: MATTER OF CONCERN FOR INDIA - SUNIL K KUMBHAT
COALspot.com - Since the issuance of Indonesian Mining law in 2009, miners have increased their activities in exploring , ex ...
Thursday, 05 April 12
AKR COAL FIRST EXPORT SHIPMENT OF COAL SEABORNE
PT Anugrah Karya Raya (AKR Coal) subsidiary of PT AKR Corporindo Tbk., Indonesia’s leading integrated supply chain solutions provider and larg ...
Thursday, 05 April 12
DRY BULK MARKET STALLS AS TREND IS REVERSED - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has halted its month-long rally, with the BDI (Baltic Dry Index) retreating yesterday for a second consecutive session. Industry ...
Wednesday, 04 April 12
OIL MAY JUMP TO $150PB IF IRAN ATTACKED: EXPERT - KUNA / HELLENIC SHIPPING
Prices of oil will not drop below level of $100 per barrel and may jump to $150 pb in the coming two months, according to the prominent Kuwaiti expe ...
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- Bhushan Steel Limited - India
- Eastern Coal Council - USA
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- Bayan Resources Tbk. - Indonesia
- Orica Mining Services - Indonesia
- PowerSource Philippines DevCo
- Krishnapatnam Port Company Ltd. - India
- The Treasury - Australian Government
- Electricity Generating Authority of Thailand
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- Toyota Tsusho Corporation, Japan
- White Energy Company Limited
- Jindal Steel & Power Ltd - India
- Oldendorff Carriers - Singapore
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Sidhee Cement - India
- Ministry of Finance - Indonesia
- Indian Oil Corporation Limited
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Renaissance Capital - South Africa
- Parry Sugars Refinery, India
- London Commodity Brokers - England
- Global Business Power Corporation, Philippines
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Bangladesh Power Developement Board
- Pendopo Energi Batubara - Indonesia
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- India Bulls Power Limited - India
- Samtan Co., Ltd - South Korea
- Videocon Industries ltd - India
- GMR Energy Limited - India
- Manunggal Multi Energi - Indonesia
- Orica Australia Pty. Ltd.
- Petrochimia International Co. Ltd.- Taiwan
- GAC Shipping (India) Pvt Ltd
- VISA Power Limited - India
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Mineral Development Corp Ltd - India
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Antam Resourcindo - Indonesia
- Kumho Petrochemical, South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Timah Investasi Mineral - Indoneisa
- Coalindo Energy - Indonesia
- Tata Chemicals Ltd - India
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Global Green Power PLC Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- Merrill Lynch Commodities Europe
- The University of Queensland
- Rio Tinto Coal - Australia
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Aboitiz Power Corporation - Philippines
- Energy Development Corp, Philippines
- The State Trading Corporation of India Ltd
- Salva Resources Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Medco Energi Mining Internasional
- PTC India Limited - India
- Energy Link Ltd, New Zealand
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercuria Energy - Indonesia
- Parliament of New Zealand
- TeaM Sual Corporation - Philippines
- Siam City Cement - Thailand
- Madhucon Powers Ltd - India
- Minerals Council of Australia
- Central Electricity Authority - India
- Indo Tambangraya Megah - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Riau Bara Harum - Indonesia
- IEA Clean Coal Centre - UK
- Cement Manufacturers Association - India
- Latin American Coal - Colombia
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Karaikal Port Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- MS Steel International - UAE
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Directorate Of Revenue Intelligence - India
- Posco Energy - South Korea
- Australian Coal Association
- Bhoruka Overseas - Indonesia
- Intertek Mineral Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Altura Mining Limited, Indonesia
- Meralco Power Generation, Philippines
- Lanco Infratech Ltd - India
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Rashtriya Ispat Nigam Limited - India
- Borneo Indobara - Indonesia
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- OPG Power Generation Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kartika Selabumi Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Wood Mackenzie - Singapore
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- Mjunction Services Limited - India
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Ministry of Transport, Egypt
- Port Waratah Coal Services - Australia
- Australian Commodity Traders Exchange
- Bhatia International Limited - India
- Carbofer General Trading SA - India
- Globalindo Alam Lestari - Indonesia
- SMC Global Power, Philippines
- Sakthi Sugars Limited - India
- Larsen & Toubro Limited - India
- Barasentosa Lestari - Indonesia
- Mintek Dendrill Indonesia
- Chettinad Cement Corporation Ltd - India
- ICICI Bank Limited - India
- Interocean Group of Companies - India
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Straits Asia Resources Limited - Singapore
- Formosa Plastics Group - Taiwan
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Agrawal Coal Company - India
- Economic Council, Georgia
- Bukit Baiduri Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- Xindia Steels Limited - India
- Petron Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Bukit Makmur.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Authority, New Zealand
- South Luzon Thermal Energy Corporation
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