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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, 22 February 12
RAW COMMODITY EXPORT BAN SPARKS SMELTER BUILDING BOOM IN INDONESIA ANTARA / THE JAKARTA GLOBE
Antara / The Jakarta Globe reported that, as the government gears up to ban all exports of unprocessed commodities, Indonesia will see 12 new ...
Tuesday, 21 February 12
THREAT ISSUED ON MINERAL FIRMS AS GOVT PLANS EXPORT BAN - THE JAKARTA POST
The Jakarta Post, one of the leading english news papaer in Indonesia reported that, the government has given mineral producers three months to subm ...
Monday, 20 February 12
WEEKLY DRY MARKET OVERVIEW - MARIA BERTZELETOU
The dry market experienced one more disappointing week with tonnage oversupply and limited cargo demand that pushes earnings for shipping players to ...
Monday, 20 February 12
JATENERGY SECURES FIRST 8000-TONNE COAL SALES CONTRACT FOR JONGKANG MINES
8000-tonne contract with Singaporean buyer signed for March delivery
50% down payment due in five working days
Production continues at both Jongka ...
Monday, 20 February 12
DIAN SWASTATIKA ACQUIRES ANDALAN LESTARI - INSIDER STORIES
Insider Stories reported that, PT Dian Swastatika Sentosa Tbk (DSSA), controlled by Fuganto Widjaja, son of Indra Widjaja, reported a 99.83% takeove ...
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- Central Java Power - Indonesia
- ICICI Bank Limited - India
- Mintek Dendrill Indonesia
- Baramulti Group, Indonesia
- Parry Sugars Refinery, India
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- IEA Clean Coal Centre - UK
- Heidelberg Cement - Germany
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Metalloyd Limited - United Kingdom
- Holcim Trading Pte Ltd - Singapore
- Manunggal Multi Energi - Indonesia
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Grasim Industreis Ltd - India
- Planning Commission, India
- Wood Mackenzie - Singapore
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Kohat Cement Company Ltd. - Pakistan
- Lanco Infratech Ltd - India
- Vizag Seaport Private Limited - India
- Vedanta Resources Plc - India
- Sree Jayajothi Cements Limited - India
- Trasteel International SA, Italy
- India Bulls Power Limited - India
- Indian Energy Exchange, India
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
- Ministry of Transport, Egypt
- Thiess Contractors Indonesia
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Ceylon Electricity Board - Sri Lanka
- Central Electricity Authority - India
- Latin American Coal - Colombia
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Coalindo Energy - Indonesia
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Kaltim Prima Coal - Indonesia
- Romanian Commodities Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Mining Services - Indonesia
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coastal Gujarat Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Globalindo Alam Lestari - Indonesia
- Economic Council, Georgia
- Vijayanagar Sugar Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- Oldendorff Carriers - Singapore
- Banpu Public Company Limited - Thailand
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- Indian Oil Corporation Limited
- MS Steel International - UAE
- Star Paper Mills Limited - India
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- Bukit Asam (Persero) Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Iligan Light & Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- ASAPP Information Group - India
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Australian Commodity Traders Exchange
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Therma Luzon, Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- PowerSource Philippines DevCo
- Xindia Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Tamil Nadu electricity Board
- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Bayan Resources Tbk. - Indonesia
- Bharathi Cement Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Commonwealth Bank - Australia
- Salva Resources Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Uttam Galva Steels Limited - India
- Parliament of New Zealand
- Georgia Ports Authority, United States
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- SMG Consultants - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Mercuria Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- McConnell Dowell - Australia
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Sakthi Sugars Limited - India
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Merrill Lynch Commodities Europe
- Sarangani Energy Corporation, Philippines
- Independent Power Producers Association of India
- Timah Investasi Mineral - Indoneisa
- Kobexindo Tractors - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ministry of Mines - Canada
- Australian Coal Association
- Bhatia International Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- VISA Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Ministry of Finance - Indonesia
- Cement Manufacturers Association - India
- Samtan Co., Ltd - South Korea
- Meralco Power Generation, Philippines
- Coal and Oil Company - UAE
- Bangladesh Power Developement Board
- Electricity Generating Authority of Thailand
- The State Trading Corporation of India Ltd
- SMC Global Power, Philippines
- Borneo Indobara - Indonesia
- Renaissance Capital - South Africa
- White Energy Company Limited
- Maheswari Brothers Coal Limited - India
- Formosa Plastics Group - Taiwan
- The University of Queensland
- Indo Tambangraya Megah - Indonesia
- Energy Link Ltd, New Zealand
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Price Waterhouse Coopers - Russia
- CNBM International Corporation - China
- South Luzon Thermal Energy Corporation
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- PTC India Limited - India
- Videocon Industries ltd - India
- Kepco SPC Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- Ambuja Cements Ltd - India
- Antam Resourcindo - Indonesia
- Bukit Makmur.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Bhushan Steel Limited - India
- Sindya Power Generating Company Private Ltd
- Global Green Power PLC Corporation, Philippines
- Petron Corporation, Philippines
- New Zealand Coal & Carbon
- Barasentosa Lestari - Indonesia
- Leighton Contractors Pty Ltd - Australia
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Semirara Mining Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Jaiprakash Power Ventures ltd
- Indonesian Coal Mining Association
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Chamber of Mines of South Africa
- Posco Energy - South Korea
- Intertek Mineral Services - Indonesia
- Deloitte Consulting - India
- Mjunction Services Limited - India
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