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Friday, 23 December 11
CONTENTIOUS ISSUES IN CONTRACT RENEGOTIATION - THE JAKARTA POST
 The government has been renegotiating mining contracts, especially those 30-40 years old, with almost all mining companies, including PT Freeport Indonesia, which has been operating since 1967. This is a major step the government is taking and of course will affect the climate of mining investment in the future. If not carefully planned and executed, renegotiation might severely harm the prospects of the national mining industry.
That is why it is important for the government to choose the most important points to be brought to the negotiating table and to ensure that the results are beneficial to both sides, i.e., the mining enterprises and the government.
The basis for renegotiation is Law No. 4 /2009 on mining, which has changed the mining-concession regime by introducing a new licensing system. The law replaces mining authorizations (Kuasa Pertambangan or KP) as well as contracts of work (CoWs) and contracts of coal mining work (CCoW or PKP2B). The government acknowledges all CoWs/CCoWs that have been awarded before the law was promulgated; however all CoWs/CCoWs still need to be renegotiated.
The fundamental difference between the concession and licensing regimes lies in a number of points. Most important is the difference in the legal nature. While concession is based on civil law and the source of law is the agreement itself, licensing is public and legislation is the source of law. The application of a “concession” is the agreement between the two parties, the mining enterprises and the government, while a “license” is based on permission from the government.
In terms of rights and obligations, a licensing regime puts the government in a more dominant position. Settlement of disputes is through international arbitration for concession agreements but is via a state administrative court for licensing regimes.
These differences, of course, will be perceived differently by different mining enterprises. Large-scale mining companies and international enterprises prefer arbitration as a legal option, because arbitration is considered to be more fair and free from political intervention. Given that perception, the new regime is seen to generate potentially larger political risks.
Moreover, the bilateral nature of the contract system is believed to provide more protection against future changes in the law than a unilateral licensing system.
For small or national mining companies, however, licensing regimes might be seen to be friendlier as they provide equal opportunities to both domestic and foreign investors in applying for licenses.
Renegotiation is needed to adjust the content of contracts, which have been running since before the Mining Law came into being. These contracts need to be adapted to be in accordance with the new law. Renegotiation began in the fourth quarter of 2009 for CoWs and early 2010 for CCoWs.
Philosophically, however, renegotiation aims at restoring the country’s sovereignty over its natural resources as well as providing a better use of the resources for the people. This is reflected in a number of articles to adjust CoWs and CCoWs, to increase the added value for minerals and coal by imposing an obligation on contractors to establish downstream industrial facilities, to enhance state revenue through rate adjustments for royalties and production fees and to prioritize the use of local and national services.
Based on the notion of providing a better use of resources, a number of strategic issues are being brought to the negotiation table, such as the limitation of mining areas, contract extension, state revenue, divestment obligations for foreign investors that hold full-ownership in local mining firms, the obligation of processing and refining in the country’s smelters, as well as the obligations of the use of domestic goods and services.
As expected, the most prominent issue during the renegotiation is about the augmented state revenue — the first contentious issue. State revenue refers to mining taxes and profit-sharing schemes. The government is tightening tax regulations to enhance national revenue. This is the reason why the tax authority is involved in the renegotiation and assesses whether or not an enterprise is losing money.
Renegotiation on profit-sharing might not be necessary with those enterprises that are losing money. But the key point here is transparency — the enterprises must reveal their income — as the fundamental purpose of the renegotiation is for the results to be fair and transparent.
The limitation of mining areas is the second contentious issue. According to the law, all areas of work that exceed the maximum limit of 100,000 hectares (ha) for minerals and 50,000 ha for coal should be returned to the state. This has proven to be difficult, since most of the large mining enterprises have been working areas beyond this threshold. Freeport has a working area of up to 1.8 million ha, and Arutmin about 70,000 ha, and Inco about 180,000 ha.
The third contentious issue is extension of concession contracts. A concession contract is terminated when it expires. After that, the management must submit to the state, represented by state or local enterprises, a proposal to obtain a new mining license. Contract extension with the old contractor can be achieved only if the contractor is a minority shareholder.
These three issues are problems for both the government and the enterprises to resolve. Currently, there are about 113 plans to renegotiate mining contracts, of which 37 CoWs are in the mining of metals and minerals and 76 are contracts of coal mining work (CCoWs). The majority of the mining enterprises seem to be in the “Partially Agree” mode for CoWs and in the “Agree to All Amendment Articles” mode for CCoWS.
The results must be beneficial to both sides, promoting transparency and fairness. Mining has been contributing greatly to the country’s economy, as well as wealth to a number of mining enterprises. In 2010, mining accounted for about 11.15 percent of GDP for Indonesia overall, and a much higher percentage for provinces such as Papua, Bangka-Belitung, West Nusa Tenggara and East Kalimantan. Mining also accounted for 16.91 percent of Indonesian exports, providing Rp 9.7 trillion of government revenue.
But annual average mining investment is not growing as expected. Only in the coal sector has any large-scale new production capacity been developed in recent years. The vast majority of the investment is for the replacement of mining infrastructure to sustain capacity.
Given the long lead times to find and develop new mines, production declines will be inevitable unless the renegotiation can enhance transparency and the mining policy environment is improved.
We have to remember that the country has some of the most prospective geological areas and according to one international survey, only some areas of Canada and Australia have better mineral prospects. Thus, it is possible for mining to make a much larger economic contribution at the local, provincial and national levels.
The renegotiation process cannot be allowed to hinder this contribution. We have to avoid losing our competitiveness at a time when other countries are seeking new mining investment.
By: Montty Girianna
Source: The Jakarta Post
The writer is director for energy, mineral resources and mining at the National Development Planning Agency (BAPPENAS).
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Friday, 09 March 12
SHIP OWNERS LOOKING TO CHINA FOR REVIVAL, WHILE THEY KEEP SELLING OLD SHIPS FOR SCRAP - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With China’s economic policy plan for the future on every ship owner’s mind, at least those involved in the dry bulk industry, the lates ...
Thursday, 08 March 12
INDONESIA'S COAL SECTOR CAN BENEFIT FROM CLEARER REGULATIONS - FITCH RATINGS
Fitch Ratings says Indonesia's coal mining sector should continue to see strong growth prospects but can benefit from clearer and more predictable ...
Thursday, 08 March 12
DRY BULK MARKET ON THE RISE; CHINAS COAL IMPORTS COULD INCREASE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market kept on rising back to healthier levels yesterday, with the BDI (Baltic Dry Index) the industry’s benchmark, marking its 8 ...
Wednesday, 07 March 12
INDONESIA COAL BENCHMARK PRICE GAINS FOR SECOND MONTH
COALspot.com - Indonesia raised the monthly coal reference price for sales in March by 1.15 percent, the second increase since February.
The Mini ...
Wednesday, 07 March 12
INDONESIA TO LIMIT FOREIGN OWNERSHIP IN MINES TO 49 PERCENT WITHIN 10 YEARS OF PRODUCTION
COALspot.com - Foreign holders of mining licenses in Indonesia have to divert 51% of their stakes to Indonesian government or domestic entitie ...
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Showing 4816 to 4820 news of total 6871 |
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- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Altura Mining Limited, Indonesia
- GAC Shipping (India) Pvt Ltd
- GN Power Mariveles Coal Plant, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Goldman Sachs - Singapore
- Sree Jayajothi Cements Limited - India
- Ceylon Electricity Board - Sri Lanka
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- Vizag Seaport Private Limited - India
- Africa Commodities Group - South Africa
- Timah Investasi Mineral - Indoneisa
- Parliament of New Zealand
- Power Finance Corporation Ltd., India
- SN Aboitiz Power Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Australian Commodity Traders Exchange
- International Coal Ventures Pvt Ltd - India
- Mintek Dendrill Indonesia
- Deloitte Consulting - India
- Economic Council, Georgia
- London Commodity Brokers - England
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Malabar Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Kideco Jaya Agung - Indonesia
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Electricity Authority, New Zealand
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- Coastal Gujarat Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Price Waterhouse Coopers - Russia
- Toyota Tsusho Corporation, Japan
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- Global Business Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Jaiprakash Power Ventures ltd
- Indonesian Coal Mining Association
- Orica Australia Pty. Ltd.
- Bukit Asam (Persero) Tbk - Indonesia
- The State Trading Corporation of India Ltd
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Banpu Public Company Limited - Thailand
- Semirara Mining Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- TeaM Sual Corporation - Philippines
- Parry Sugars Refinery, India
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Ambuja Cements Ltd - India
- PowerSource Philippines DevCo
- Indika Energy - Indonesia
- Wood Mackenzie - Singapore
- LBH Netherlands Bv - Netherlands
- Marubeni Corporation - India
- Kaltim Prima Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- Antam Resourcindo - Indonesia
- Borneo Indobara - Indonesia
- Siam City Cement - Thailand
- IEA Clean Coal Centre - UK
- Bhatia International Limited - India
- Edison Trading Spa - Italy
- Rashtriya Ispat Nigam Limited - India
- Grasim Industreis Ltd - India
- Wilmar Investment Holdings
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- Planning Commission, India
- Videocon Industries ltd - India
- Kumho Petrochemical, South Korea
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- Bukit Makmur.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- AsiaOL BioFuels Corp., Philippines
- San Jose City I Power Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Latin American Coal - Colombia
- Agrawal Coal Company - India
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Ministry of Finance - Indonesia
- Singapore Mercantile Exchange
- European Bulk Services B.V. - Netherlands
- Interocean Group of Companies - India
- Chamber of Mines of South Africa
- The University of Queensland
- Indogreen Group - Indonesia
- PNOC Exploration Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- PTC India Limited - India
- Siam City Cement PLC, Thailand
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
- Australian Coal Association
- Gujarat Sidhee Cement - India
- The Treasury - Australian Government
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- Bulk Trading Sa - Switzerland
- Chettinad Cement Corporation Ltd - India
- Mjunction Services Limited - India
- Oldendorff Carriers - Singapore
- Sical Logistics Limited - India
- Dalmia Cement Bharat India
- Carbofer General Trading SA - India
- Kohat Cement Company Ltd. - Pakistan
- Cement Manufacturers Association - India
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Ministry of Mines - Canada
- Maheswari Brothers Coal Limited - India
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Electricity Generating Authority of Thailand
- Lanco Infratech Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Tata Chemicals Ltd - India
- White Energy Company Limited
- Independent Power Producers Association of India
- GVK Power & Infra Limited - India
- Vedanta Resources Plc - India
- Thai Mozambique Logistica
- Iligan Light & Power Inc, Philippines
- MS Steel International - UAE
- Xindia Steels Limited - India
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- Sojitz Corporation - Japan
- Central Electricity Authority - India
- Rio Tinto Coal - Australia
- Semirara Mining and Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Heidelberg Cement - Germany
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Sakthi Sugars Limited - India
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- Therma Luzon, Inc, Philippines
- Renaissance Capital - South Africa
- Indian Energy Exchange, India
- Kobexindo Tractors - Indoneisa
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
- Indian Oil Corporation Limited
- CIMB Investment Bank - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Mercator Lines Limited - India
- Essar Steel Hazira Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- SMG Consultants - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- SMC Global Power, Philippines
- CNBM International Corporation - China
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- Global Green Power PLC Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Simpson Spence & Young - Indonesia
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