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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, 15 March 12
RESOURCE ALAM FY11 PROFIT UP 171% - INSIDER STORIES
Insider Stories reported that, coal mining company PT Resource Alam Indonesia Tbk (KKGI) reported a 171.16% jump in net profit last year on the back ...
Wednesday, 14 March 12
GLOBAL THERMAL TRADE FLOW CHANGES WILL ENSURE SECURITY OF THERMAL COAL SUPPLY, ALBEIT AT A HIGH PRICE - WOOD MACKENZIE
Wood Mackenzie Says Global Thermal Trade Flow Changes Will Ensure Security of Thermal Coal Supply, Albeit At a High Price Seaborne thermal demand by ...
Wednesday, 14 March 12
COKAL TAKES ANOTHER STEP IN DEVELOPING INFRASTRUCTURE TO FACILITATE METALLURGICAL COAL PRODUCTION
Global coal group, Cokal Limited (ASX-CKA), has signed Memorandums of Understanding (MoU’s) to develop two river ports and two small scale coa ...
Tuesday, 13 March 12
CLARIFICATION OF GR 24 OF 2012 REQUIRING DIVESTMENT OF FOREIGN OWNERSHIP OVER TIME
ASX Announcement
Global metallurgical coal group, Cokal Limited (ASX-CKA), is responding to the recent announcement of the Indonesian Ministry of ...
Tuesday, 13 March 12
EUROPEAN COAL CONTANGO: FURTHER STEEPNESS REQUIRED TO MAKE LARGE SCALE PHYSICAL TIME SPREAD ARBITRAGE MORE ATTRACTIVE - MISWIN MAHESH, BARCLAYS CAPITAL
COALspot.com - "With the contango between the Y+1 and M+1 ARA delivered contract now averaging above the $14/t level, there is an increasing in ...
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- Trasteel International SA, Italy
- LBH Netherlands Bv - Netherlands
- Therma Luzon, Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Medco Energi Mining Internasional
- Barasentosa Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Makarim & Taira - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- Gujarat Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- Independent Power Producers Association of India
- Lanco Infratech Ltd - India
- Parliament of New Zealand
- Kepco SPC Power Corporation, Philippines
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Xindia Steels Limited - India
- Samtan Co., Ltd - South Korea
- Sakthi Sugars Limited - India
- Coastal Gujarat Power Limited - India
- Aboitiz Power Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Eastern Coal Council - USA
- TNB Fuel Sdn Bhd - Malaysia
- Banpu Public Company Limited - Thailand
- Orica Mining Services - Indonesia
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Central Electricity Authority - India
- Ministry of Mines - Canada
- Intertek Mineral Services - Indonesia
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- Electricity Authority, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Essar Steel Hazira Ltd - India
- Carbofer General Trading SA - India
- Kapuas Tunggal Persada - Indonesia
- SMC Global Power, Philippines
- Attock Cement Pakistan Limited
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- Bhatia International Limited - India
- White Energy Company Limited
- Central Java Power - Indonesia
- Heidelberg Cement - Germany
- Formosa Plastics Group - Taiwan
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- IEA Clean Coal Centre - UK
- Economic Council, Georgia
- Chamber of Mines of South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Edison Trading Spa - Italy
- Standard Chartered Bank - UAE
- European Bulk Services B.V. - Netherlands
- Eastern Energy - Thailand
- Merrill Lynch Commodities Europe
- Wood Mackenzie - Singapore
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Parry Sugars Refinery, India
- CIMB Investment Bank - Malaysia
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Global Coal Blending Company Limited - Australia
- Indo Tambangraya Megah - Indonesia
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Sindya Power Generating Company Private Ltd
- Marubeni Corporation - India
- ICICI Bank Limited - India
- Altura Mining Limited, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- India Bulls Power Limited - India
- SMG Consultants - Indonesia
- Sical Logistics Limited - India
- Star Paper Mills Limited - India
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Deloitte Consulting - India
- Vedanta Resources Plc - India
- Riau Bara Harum - Indonesia
- Energy Link Ltd, New Zealand
- Directorate Of Revenue Intelligence - India
- MS Steel International - UAE
- Interocean Group of Companies - India
- Bayan Resources Tbk. - Indonesia
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- Binh Thuan Hamico - Vietnam
- Simpson Spence & Young - Indonesia
- Power Finance Corporation Ltd., India
- Latin American Coal - Colombia
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Thai Mozambique Logistica
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Commonwealth Bank - Australia
- Indian Oil Corporation Limited
- Larsen & Toubro Limited - India
- San Jose City I Power Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Petron Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Kohat Cement Company Ltd. - Pakistan
- Posco Energy - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- The State Trading Corporation of India Ltd
- OPG Power Generation Pvt Ltd - India
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Wilmar Investment Holdings
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Billiton Holdings Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Pendopo Energi Batubara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Malabar Cements Ltd - India
- GVK Power & Infra Limited - India
- Planning Commission, India
- Cement Manufacturers Association - India
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- IHS Mccloskey Coal Group - USA
- Maheswari Brothers Coal Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- Krishnapatnam Port Company Ltd. - India
- Romanian Commodities Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Indika Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- ASAPP Information Group - India
- Orica Australia Pty. Ltd.
- Bharathi Cement Corporation - India
- Ambuja Cements Ltd - India
- Mintek Dendrill Indonesia
- Bangladesh Power Developement Board
- Agrawal Coal Company - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Transport, Egypt
- Baramulti Group, Indonesia
- London Commodity Brokers - England
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Vizag Seaport Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Kobexindo Tractors - Indoneisa
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
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