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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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Wednesday, 07 March 12
ASSESS ASIAS POTENTIAL, DEVELOPMENTS AND APPETITE FOR SHALE AT SHALE GAS SUMMIT
Press Release - Assess Asia’s Potential, Developments and Appetite for Shale at Shale Gas Summit on 23-24 Apr, 2012 in Beijing
China is rep ...
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 ...
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- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Thiess Contractors Indonesia
- Ceylon Electricity Board - Sri Lanka
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- Madhucon Powers Ltd - India
- Orica Australia Pty. Ltd.
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Parry Sugars Refinery, India
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Meralco Power Generation, Philippines
- Trasteel International SA, Italy
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- Sical Logistics Limited - India
- Mercuria Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- Siam City Cement PLC, Thailand
- Siam City Cement - Thailand
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- Therma Luzon, Inc, Philippines
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- Simpson Spence & Young - Indonesia
- Videocon Industries ltd - India
- Attock Cement Pakistan Limited
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- London Commodity Brokers - England
- Bharathi Cement Corporation - India
- Cigading International Bulk Terminal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Mjunction Services Limited - India
- Vizag Seaport Private Limited - India
- Kohat Cement Company Ltd. - Pakistan
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sakthi Sugars Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Barasentosa Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Bukit Baiduri Energy - Indonesia
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Posco Energy - South Korea
- Karaikal Port Pvt Ltd - India
- Vedanta Resources Plc - India
- CIMB Investment Bank - Malaysia
- PowerSource Philippines DevCo
- Kumho Petrochemical, South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- Pipit Mutiara Jaya. PT, Indonesia
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Pendopo Energi Batubara - Indonesia
- Dalmia Cement Bharat India
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- Australian Commodity Traders Exchange
- San Jose City I Power Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Heidelberg Cement - Germany
- Timah Investasi Mineral - Indoneisa
- Global Business Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Africa Commodities Group - South Africa
- Alfred C Toepfer International GmbH - Germany
- Goldman Sachs - Singapore
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- Globalindo Alam Lestari - Indonesia
- Renaissance Capital - South Africa
- AsiaOL BioFuels Corp., Philippines
- Gujarat Mineral Development Corp Ltd - India
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- Australian Coal Association
- Borneo Indobara - Indonesia
- Eastern Energy - Thailand
- Singapore Mercantile Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhatia International Limited - India
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- SMG Consultants - Indonesia
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Power Finance Corporation Ltd., India
- Planning Commission, India
- Minerals Council of Australia
- McConnell Dowell - Australia
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Chettinad Cement Corporation Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rio Tinto Coal - Australia
- Electricity Generating Authority of Thailand
- Mintek Dendrill Indonesia
- Kobexindo Tractors - Indoneisa
- The State Trading Corporation of India Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Coal and Oil Company - UAE
- ASAPP Information Group - India
- GVK Power & Infra Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- India Bulls Power Limited - India
- Antam Resourcindo - Indonesia
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Toyota Tsusho Corporation, Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- SMC Global Power, Philippines
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- IHS Mccloskey Coal Group - USA
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- PTC India Limited - India
- The University of Queensland
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Cement Manufacturers Association - India
- Salva Resources Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Gujarat Sidhee Cement - India
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Baramulti Group, Indonesia
- Ind-Barath Power Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining and Power Corporation, Philippines
- Independent Power Producers Association of India
- Sarangani Energy Corporation, Philippines
- Uttam Galva Steels Limited - India
- PNOC Exploration Corporation - Philippines
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Tata Chemicals Ltd - India
- Bhoruka Overseas - Indonesia
- SN Aboitiz Power Inc, Philippines
- White Energy Company Limited
- Romanian Commodities Exchange
- Asmin Koalindo Tuhup - Indonesia
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- MS Steel International - UAE
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- Medco Energi Mining Internasional
- Agrawal Coal Company - India
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Transport, Egypt
- Kartika Selabumi Mining - Indonesia
- CNBM International Corporation - China
- Georgia Ports Authority, United States
- Malabar Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Lanco Infratech Ltd - India
- Price Waterhouse Coopers - Russia
- Chamber of Mines of South Africa
- VISA Power Limited - India
- Mercator Lines Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Riau Bara Harum - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Intertek Mineral Services - Indonesia
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Marubeni Corporation - India
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