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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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Wednesday, 07 March 12
3RD MOZAMBIQUE COAL CONFERENCE
3rd Mozambique Coal Conference
2-4 July 2012 | Joaquim Chissano International Conference Centre , Maputo, Mozambique
http://www.immevents.com/mo ...
Wednesday, 07 March 12
DRY BULK MARKET KEEPS UP TIMID REBOUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept its rising momentum yesterday, rising for the eighth straight session, on the back of renewed demand for smaller bulk c ...
Wednesday, 07 March 12
BUKIT ASAM EYES 39% RISE IN COAL SALES - INSIDER STORIES
Insider Stories reported that, PT Bukit Asam Tbk is scouting a 39% increase in coal sales volume to 18.66 million tons this year from last year with ...
Wednesday, 07 March 12
PETROSEA SEALS US$188 MIO CONTRACT - INSIDER STORIES
Insider Stories reported that, coal mining contractor PT Petrosea Tbk has secured a US$188 million additional contract from its affiliated firm PT S ...
Monday, 05 March 12
SOUTHGOBI ANNOUNCES AGREEMENT TO SELL ITS THERMAL COAL TSAGAAN TOLGOI DEPOSIT FOR US$ 30 MILLION
SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) announced today an agreement to sell its thermal coal property, the Tsagaan Tolgoi Deposit to Modun Re ...
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- Samtan Co., Ltd - South Korea
- Cement Manufacturers Association - India
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- India Bulls Power Limited - India
- TeaM Sual Corporation - Philippines
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Antam Resourcindo - Indonesia
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Lanco Infratech Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- Ceylon Electricity Board - Sri Lanka
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Star Paper Mills Limited - India
- Gujarat Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Dalmia Cement Bharat India
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
- PowerSource Philippines DevCo
- Minerals Council of Australia
- Leighton Contractors Pty Ltd - Australia
- Ministry of Mines - Canada
- The State Trading Corporation of India Ltd
- Bhushan Steel Limited - India
- Billiton Holdings Pty Ltd - Australia
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Toyota Tsusho Corporation, Japan
- Kobexindo Tractors - Indoneisa
- Bhoruka Overseas - Indonesia
- Electricity Authority, New Zealand
- Bukit Baiduri Energy - Indonesia
- Energy Link Ltd, New Zealand
- Larsen & Toubro Limited - India
- South Luzon Thermal Energy Corporation
- Bukit Asam (Persero) Tbk - Indonesia
- Agrawal Coal Company - India
- Deloitte Consulting - India
- Neyveli Lignite Corporation Ltd, - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Carbofer General Trading SA - India
- Posco Energy - South Korea
- Medco Energi Mining Internasional
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Malabar Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Directorate Of Revenue Intelligence - India
- Meralco Power Generation, Philippines
- Tamil Nadu electricity Board
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Oldendorff Carriers - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Orica Mining Services - Indonesia
- Ministry of Finance - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- SN Aboitiz Power Inc, Philippines
- VISA Power Limited - India
- Parliament of New Zealand
- Videocon Industries ltd - India
- Jaiprakash Power Ventures ltd
- Miang Besar Coal Terminal - Indonesia
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Metalloyd Limited - United Kingdom
- Makarim & Taira - Indonesia
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- Thai Mozambique Logistica
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- Gujarat Sidhee Cement - India
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Indika Energy - Indonesia
- Georgia Ports Authority, United States
- Vedanta Resources Plc - India
- Asmin Koalindo Tuhup - Indonesia
- PTC India Limited - India
- Kapuas Tunggal Persada - Indonesia
- Kartika Selabumi Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ASAPP Information Group - India
- Grasim Industreis Ltd - India
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Krishnapatnam Port Company Ltd. - India
- Australian Commodity Traders Exchange
- Xindia Steels Limited - India
- Sojitz Corporation - Japan
- Aboitiz Power Corporation - Philippines
- Sical Logistics Limited - India
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bharathi Cement Corporation - India
- SMC Global Power, Philippines
- New Zealand Coal & Carbon
- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- IHS Mccloskey Coal Group - USA
- Indonesian Coal Mining Association
- Riau Bara Harum - Indonesia
- Globalindo Alam Lestari - Indonesia
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kohat Cement Company Ltd. - Pakistan
- Kumho Petrochemical, South Korea
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- The Treasury - Australian Government
- IEA Clean Coal Centre - UK
- Sarangani Energy Corporation, Philippines
- Interocean Group of Companies - India
- Savvy Resources Ltd - HongKong
- CNBM International Corporation - China
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Vizag Seaport Private Limited - India
- Price Waterhouse Coopers - Russia
- Eastern Coal Council - USA
- Bangladesh Power Developement Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- Altura Mining Limited, Indonesia
- Edison Trading Spa - Italy
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Planning Commission, India
- Standard Chartered Bank - UAE
- Rashtriya Ispat Nigam Limited - India
- Banpu Public Company Limited - Thailand
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- CIMB Investment Bank - Malaysia
- Mercator Lines Limited - India
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- McConnell Dowell - Australia
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- Tata Chemicals Ltd - India
- Singapore Mercantile Exchange
- Borneo Indobara - Indonesia
- Australian Coal Association
- Intertek Mineral Services - Indonesia
- Coal and Oil Company - UAE
- Holcim Trading Pte Ltd - Singapore
- Coalindo Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Electricity Generating Authority of Thailand
- Kalimantan Lumbung Energi - Indonesia
- GMR Energy Limited - India
- Aditya Birla Group - India
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Economic Council, Georgia
- Therma Luzon, Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- Power Finance Corporation Ltd., India
- Indogreen Group - Indonesia
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- SMG Consultants - Indonesia
- Sakthi Sugars Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- LBH Netherlands Bv - Netherlands
- Africa Commodities Group - South Africa
- Attock Cement Pakistan Limited
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