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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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Sunday, 18 March 12
BUKIT ASAM'S NET PROFIT IN 2011 ROSE 54% TO US$ 339.56 MILLION
COALspot.com - Company revenue for the period January - December 2011 amounting to Rp 10.6 trillion (approximately US$ 1,164,835,164.84) recorded an ...
Saturday, 17 March 12
THE FREIGHT RATES FOR INDONESIA TO INDIA REMAINED FIRM - VISTAAR SINGAPORE
COALspot.com - The market continued to be firm and all segments were up except for Cape Index which was down by 2.46 pct closing at 1,466 points.
...
Saturday, 17 March 12
INDIAN GOVT FINALIZES DRAFT BILL FOR COAL REGULATOR - PTI
The coal sector would soon get a regulator as the government has finalised a draft bill for the purpose, Coal Minister Sriprakash Jaiswal said Wedne ...
Friday, 16 March 12
THE PACIFIC MARKET IS FIRMING UP - FEARNLEYS AS
Handy
A slightly positive trend was seen last week in the Atlantic. Skaw-Passero deliveries fixed around USD 3k to US Gulf, while US Gulf deliveres ...
Thursday, 15 March 12
RAINS AVERAGE SELLING PRICE OF COAL WENT UP BY 22 % IN 2011
COALspot.com - PT. Resource Alam Indonesia Tbk, an Indonesian CCoW (3rd Generation) holder reported Wednesday a 171 percent increase in net profits ...
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- GMR Energy Limited - India
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- Ministry of Finance - Indonesia
- PTC India Limited - India
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- Therma Luzon, Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Heidelberg Cement - Germany
- Jorong Barutama Greston.PT - Indonesia
- Kepco SPC Power Corporation, Philippines
- Agrawal Coal Company - India
- Borneo Indobara - Indonesia
- Global Green Power PLC Corporation, Philippines
- London Commodity Brokers - England
- San Jose City I Power Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- Malabar Cements Ltd - India
- Commonwealth Bank - Australia
- Aboitiz Power Corporation - Philippines
- Riau Bara Harum - Indonesia
- Indogreen Group - Indonesia
- New Zealand Coal & Carbon
- GAC Shipping (India) Pvt Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- White Energy Company Limited
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- Oldendorff Carriers - Singapore
- Indika Energy - Indonesia
- Energy Development Corp, Philippines
- MS Steel International - UAE
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- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Australian Coal Association
- Goldman Sachs - Singapore
- Vizag Seaport Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mintek Dendrill Indonesia
- Straits Asia Resources Limited - Singapore
- Ceylon Electricity Board - Sri Lanka
- Romanian Commodities Exchange
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- Karaikal Port Pvt Ltd - India
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- Petron Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Sree Jayajothi Cements Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Barasentosa Lestari - Indonesia
- Sojitz Corporation - Japan
- Miang Besar Coal Terminal - Indonesia
- European Bulk Services B.V. - Netherlands
- Bukit Baiduri Energy - Indonesia
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- SMC Global Power, Philippines
- SN Aboitiz Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- South Luzon Thermal Energy Corporation
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kartika Selabumi Mining - Indonesia
- CNBM International Corporation - China
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- Australian Commodity Traders Exchange
- Electricity Authority, New Zealand
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Anglo American - United Kingdom
- Wood Mackenzie - Singapore
- Siam City Cement - Thailand
- Ind-Barath Power Infra Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Wilmar Investment Holdings
- Kumho Petrochemical, South Korea
- Meralco Power Generation, Philippines
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Price Waterhouse Coopers - Russia
- ICICI Bank Limited - India
- India Bulls Power Limited - India
- Eastern Coal Council - USA
- Ministry of Transport, Egypt
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- McConnell Dowell - Australia
- Energy Link Ltd, New Zealand
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Planning Commission, India
- Global Business Power Corporation, Philippines
- Dalmia Cement Bharat India
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- Gujarat Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Ambuja Cements Ltd - India
- Orica Australia Pty. Ltd.
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Meenaskhi Energy Private Limited - India
- Global Coal Blending Company Limited - Australia
- VISA Power Limited - India
- The University of Queensland
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Chettinad Cement Corporation Ltd - India
- Ministry of Mines - Canada
- Coalindo Energy - Indonesia
- Interocean Group of Companies - India
- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- Karbindo Abesyapradhi - Indoneisa
- Minerals Council of Australia
- Power Finance Corporation Ltd., India
- Metalloyd Limited - United Kingdom
- Toyota Tsusho Corporation, Japan
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Banpu Public Company Limited - Thailand
- Madhucon Powers Ltd - India
- TeaM Sual Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement PLC, Thailand
- Krishnapatnam Port Company Ltd. - India
- Simpson Spence & Young - Indonesia
- Baramulti Group, Indonesia
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Parliament of New Zealand
- Makarim & Taira - Indonesia
- Samtan Co., Ltd - South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Medco Energi Mining Internasional
- Cigading International Bulk Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Bhushan Steel Limited - India
- Essar Steel Hazira Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Aditya Birla Group - India
- Indonesian Coal Mining Association
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Parry Sugars Refinery, India
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- Manunggal Multi Energi - Indonesia
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- Central Electricity Authority - India
- Videocon Industries ltd - India
- Electricity Generating Authority of Thailand
- Mercator Lines Limited - India
- Bukit Makmur.PT - Indonesia
- Mjunction Services Limited - India
- Globalindo Alam Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
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