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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, 22 March 12
ECI-CHINA HANDY RATES ARE AROUND US$ 8000 - FEARNLEYS
Handy
Another positive trend was seen last week with more cargoes entering the market. Skaw-Passero/US Gulf climbed slowly up to USD 3700, while US ...
Thursday, 22 March 12
DRY BULK MARKET KEEPS SURGING, CAPESIZES FALLING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
In what seems to be an establishing pattern, the dry bulk market has kept its upward momentum, edging closer to the 900 point-mark, but the larger s ...
Wednesday, 21 March 12
BUMA HAS PRODUCED 2.3 MILLION TONS OF COAL IN FEBRUARY 2012
COALspot.com - PT. Delta Dunia Makmur's overburden removal in February 2012 has reached totaled 23.8 million bcm (+2.4% YoY) while coal production ...
Tuesday, 20 March 12
SMALLER DRY BULK VESSELS STILL LEADING DRY BULK MARKET TO HIGHER GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has been growing during the past couple of weeks, but contrary to the usual practice, it’s not the larger Capesizes which ...
Monday, 19 March 12
WEEKLY DRY MARKET OVERVIEW: SMALLER VESSELS LEAD RATES HIGHER - MARIA BERTZELETOU, HELLENIC SHIPPING
The upward trend of the Baltic Dry Index persists strong from the end of February, spurred from the supramax market that offsets the weakness in the ...
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- Sarangani Energy Corporation, Philippines
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- Pendopo Energi Batubara - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Trasteel International SA, Italy
- Africa Commodities Group - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Billiton Holdings Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Madhucon Powers Ltd - India
- Bangladesh Power Developement Board
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- Indogreen Group - Indonesia
- Aboitiz Power Corporation - Philippines
- Kumho Petrochemical, South Korea
- Ambuja Cements Ltd - India
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- Star Paper Mills Limited - India
- ASAPP Information Group - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Mining Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Wood Mackenzie - Singapore
- Economic Council, Georgia
- Xindia Steels Limited - India
- Indian Oil Corporation Limited
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- Romanian Commodities Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Heidelberg Cement - Germany
- Ministry of Mines - Canada
- Kalimantan Lumbung Energi - Indonesia
- Central Electricity Authority - India
- Jindal Steel & Power Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Coal and Oil Company - UAE
- Kepco SPC Power Corporation, Philippines
- Vedanta Resources Plc - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- Indian Energy Exchange, India
- Petrochimia International Co. Ltd.- Taiwan
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- Bhoruka Overseas - Indonesia
- Petron Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Dalmia Cement Bharat India
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Indonesian Coal Mining Association
- The State Trading Corporation of India Ltd
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- Salva Resources Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Port Waratah Coal Services - Australia
- Central Java Power - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Planning Commission, India
- Coalindo Energy - Indonesia
- Gujarat Sidhee Cement - India
- Binh Thuan Hamico - Vietnam
- Mjunction Services Limited - India
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
- Directorate Of Revenue Intelligence - India
- Meralco Power Generation, Philippines
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- Tamil Nadu electricity Board
- Makarim & Taira - Indonesia
- Formosa Plastics Group - Taiwan
- Karbindo Abesyapradhi - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Sindya Power Generating Company Private Ltd
- Interocean Group of Companies - India
- Australian Commodity Traders Exchange
- New Zealand Coal & Carbon
- Riau Bara Harum - Indonesia
- Larsen & Toubro Limited - India
- The University of Queensland
- Merrill Lynch Commodities Europe
- Malabar Cements Ltd - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- Rio Tinto Coal - Australia
- Edison Trading Spa - Italy
- Maheswari Brothers Coal Limited - India
- Power Finance Corporation Ltd., India
- OPG Power Generation Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Krishnapatnam Port Company Ltd. - India
- Ministry of Finance - Indonesia
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Videocon Industries ltd - India
- Global Green Power PLC Corporation, Philippines
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Marubeni Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- SN Aboitiz Power Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Electricity Authority, New Zealand
- Australian Coal Association
- Sical Logistics Limited - India
- Price Waterhouse Coopers - Russia
- GAC Shipping (India) Pvt Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Agrawal Coal Company - India
- Globalindo Alam Lestari - Indonesia
- Antam Resourcindo - Indonesia
- Lanco Infratech Ltd - India
- Posco Energy - South Korea
- Meenaskhi Energy Private Limited - India
- Indika Energy - Indonesia
- Commonwealth Bank - Australia
- Orica Australia Pty. Ltd.
- Directorate General of MIneral and Coal - Indonesia
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- Sakthi Sugars Limited - India
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- PNOC Exploration Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Miang Besar Coal Terminal - Indonesia
- Baramulti Group, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Eastern Coal Council - USA
- The Treasury - Australian Government
- Metalloyd Limited - United Kingdom
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- GVK Power & Infra Limited - India
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Siam City Cement - Thailand
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- PowerSource Philippines DevCo
- Energy Link Ltd, New Zealand
- Karaikal Port Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Attock Cement Pakistan Limited
- Gujarat Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Singapore Mercantile Exchange
- Bhatia International Limited - India
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- Ministry of Transport, Egypt
- Rashtriya Ispat Nigam Limited - India
- Anglo American - United Kingdom
- Aditya Birla Group - India
- McConnell Dowell - Australia
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- Siam City Cement PLC, Thailand
- ICICI Bank Limited - India
- Wilmar Investment Holdings
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- SMC Global Power, Philippines
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Mercuria Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Ceylon Electricity Board - Sri Lanka
- SMG Consultants - Indonesia
- Latin American Coal - Colombia
- Semirara Mining and Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- Mercator Lines Limited - India
- Parry Sugars Refinery, India
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