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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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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 ...
Monday, 05 March 12
SOME RESOURCE TITANS NOT THRILLED WITH INDONESIAN EXPORT BAN - THE JAKARTA GLOBE
The Jakarta Globe reported that, local representatives of major business associations in East Kalimantan have protested a government regulation that ...
Monday, 05 March 12
WEEKLY DRY MARKET OVERVIEW - MARIA BERTZELETOU, HELLENIC SHIPPING
An air of optimism poured in the market this week for dry bulk shippers with the Baltic Dry Index recording daily gains during the end of February b ...
Sunday, 04 March 12
SE ASIA WAS FIRM FOR TRIPS TO INDIA AND CHINA - VISTAAR
COALspot.com - This week saw another upward trend with all indices up and generally market was firm.
The BDI was up by 7.38 pct closing at 771 po ...
Friday, 02 March 12
DJMBP HAS ANNOUNCED SECOND BATCH OF CLEAR N CLEAN CERTIFIED MINERS
COALspot.com - The Directorate general of mineral & coal of Indonesia has announced second batch of companies who have passed IUP Clear and Clea ...
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Showing 4826 to 4830 news of total 6871 |
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- GMR Energy Limited - India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Asmin Koalindo Tuhup - Indonesia
- Thiess Contractors Indonesia
- PTC India Limited - India
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- Standard Chartered Bank - UAE
- Commonwealth Bank - Australia
- Siam City Cement PLC, Thailand
- Indo Tambangraya Megah - Indonesia
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Sojitz Corporation - Japan
- Karaikal Port Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Electricity Authority, New Zealand
- PNOC Exploration Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Coal and Oil Company - UAE
- New Zealand Coal & Carbon
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- Riau Bara Harum - Indonesia
- Bulk Trading Sa - Switzerland
- Bukit Asam (Persero) Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- Australian Coal Association
- GAC Shipping (India) Pvt Ltd
- Power Finance Corporation Ltd., India
- MS Steel International - UAE
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Rio Tinto Coal - Australia
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Aditya Birla Group - India
- Cement Manufacturers Association - India
- Therma Luzon, Inc, Philippines
- Meralco Power Generation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Deloitte Consulting - India
- Rashtriya Ispat Nigam Limited - India
- Central Java Power - Indonesia
- Altura Mining Limited, Indonesia
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- ASAPP Information Group - India
- Formosa Plastics Group - Taiwan
- Agrawal Coal Company - India
- Siam City Cement - Thailand
- GVK Power & Infra Limited - India
- Indika Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Oldendorff Carriers - Singapore
- Coalindo Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Manunggal Multi Energi - Indonesia
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- Goldman Sachs - Singapore
- Kobexindo Tractors - Indoneisa
- Timah Investasi Mineral - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- LBH Netherlands Bv - Netherlands
- Ministry of Mines - Canada
- Bahari Cakrawala Sebuku - Indonesia
- Simpson Spence & Young - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Price Waterhouse Coopers - Russia
- Dalmia Cement Bharat India
- Ministry of Transport, Egypt
- Edison Trading Spa - Italy
- IHS Mccloskey Coal Group - USA
- Bhushan Steel Limited - India
- The University of Queensland
- Orica Australia Pty. Ltd.
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- SMG Consultants - Indonesia
- Electricity Generating Authority of Thailand
- Romanian Commodities Exchange
- Intertek Mineral Services - Indonesia
- Minerals Council of Australia
- SN Aboitiz Power Inc, Philippines
- Ambuja Cements Ltd - India
- Mercuria Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kideco Jaya Agung - Indonesia
- South Luzon Thermal Energy Corporation
- Georgia Ports Authority, United States
- Madhucon Powers Ltd - India
- Mercator Lines Limited - India
- Indonesian Coal Mining Association
- Lanco Infratech Ltd - India
- Uttam Galva Steels Limited - India
- Central Electricity Authority - India
- Indogreen Group - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Wilmar Investment Holdings
- Bangladesh Power Developement Board
- Kapuas Tunggal Persada - Indonesia
- Bukit Makmur.PT - Indonesia
- McConnell Dowell - Australia
- Metalloyd Limited - United Kingdom
- Grasim Industreis Ltd - India
- Eastern Energy - Thailand
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sinarmas Energy and Mining - Indonesia
- Xindia Steels Limited - India
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Interocean Group of Companies - India
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- India Bulls Power Limited - India
- TeaM Sual Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Chamber of Mines of South Africa
- Bharathi Cement Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Anglo American - United Kingdom
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Attock Cement Pakistan Limited
- VISA Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- Renaissance Capital - South Africa
- Billiton Holdings Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Merrill Lynch Commodities Europe
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Energy Link Ltd, New Zealand
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jindal Steel & Power Ltd - India
- Eastern Coal Council - USA
- Petrochimia International Co. Ltd.- Taiwan
- Global Coal Blending Company Limited - Australia
- Maheswari Brothers Coal Limited - India
- Gujarat Sidhee Cement - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Indian Oil Corporation Limited
- Mjunction Services Limited - India
- Marubeni Corporation - India
- Parry Sugars Refinery, India
- Trasteel International SA, Italy
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Kepco SPC Power Corporation, Philippines
- Videocon Industries ltd - India
- ICICI Bank Limited - India
- Australian Commodity Traders Exchange
- Neyveli Lignite Corporation Ltd, - India
- Posco Energy - South Korea
- Cigading International Bulk Terminal - Indonesia
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Bhoruka Overseas - Indonesia
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