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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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Saturday, 11 February 12
WILL HISTORY REPEAT ITSELF IN THIS SHIPPING CYCLE? - CLARKSONS / HELLENIC SHIPPING
A slightly dubious "best man" joke runs as follows… Best man (giving his wedding speech): "Have you noticed how history repeat ...
Friday, 10 February 12
TONNAGE KEEPS ON COMING - DREWRY
Drewry Maritime Research’s latest edition of its Dry Bulk Forecaster pulls no punches in its assessment of a market that looks certain to cont ...
Friday, 10 February 12
GIVE PERMIT POWERS TO GOVERNORS: MINERS - THE JAKARTA POST
The Jakarta Post reported that, following clashes between mining companies and local residents, the Indonesian Mining Association (IMA) wants to tra ...
Thursday, 09 February 12
AUSTRALIA'S EPIC TO ACQUIRE 15,500 HA COAL EXPLORATION LICENCES IN EAST KALIMANTAN, INDONESIA
COALspot.com - Epic Resources Limited to acquire two coal concessions in Kutai Barat regency, East Kalimantan, Indonesia.
According to company's ...
Thursday, 09 February 12
RESOURCE ALAM BUYS 28,521HA CONCESSIONS - INSIDER STORIES
Insider Stories reported that, PT Resource Alam Indonesia Tbk (KKGI), owned by Adijanto family, today announced acquisition of 75% interest in PT Ka ...
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- Indika Energy - Indonesia
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Alfred C Toepfer International GmbH - Germany
- Vijayanagar Sugar Pvt Ltd - India
- Bhushan Steel Limited - India
- Formosa Plastics Group - Taiwan
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Toyota Tsusho Corporation, Japan
- Timah Investasi Mineral - Indoneisa
- Edison Trading Spa - Italy
- Port Waratah Coal Services - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Holcim Trading Pte Ltd - Singapore
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- Riau Bara Harum - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Dalmia Cement Bharat India
- Global Green Power PLC Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Metalloyd Limited - United Kingdom
- Medco Energi Mining Internasional
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMG Consultants - Indonesia
- Mjunction Services Limited - India
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- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- Indogreen Group - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Chettinad Cement Corporation Ltd - India
- Wilmar Investment Holdings
- Kideco Jaya Agung - Indonesia
- San Jose City I Power Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Sindya Power Generating Company Private Ltd
- Cement Manufacturers Association - India
- Australian Coal Association
- Madhucon Powers Ltd - India
- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- PowerSource Philippines DevCo
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Altura Mining Limited, Indonesia
- Bayan Resources Tbk. - Indonesia
- Jindal Steel & Power Ltd - India
- Larsen & Toubro Limited - India
- Trasteel International SA, Italy
- Indo Tambangraya Megah - Indonesia
- Oldendorff Carriers - Singapore
- Romanian Commodities Exchange
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Marubeni Corporation - India
- Renaissance Capital - South Africa
- ASAPP Information Group - India
- Bukit Makmur.PT - Indonesia
- IEA Clean Coal Centre - UK
- LBH Netherlands Bv - Netherlands
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- India Bulls Power Limited - India
- Sree Jayajothi Cements Limited - India
- Parry Sugars Refinery, India
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- International Coal Ventures Pvt Ltd - India
- Chamber of Mines of South Africa
- Xindia Steels Limited - India
- White Energy Company Limited
- Australian Commodity Traders Exchange
- Minerals Council of Australia
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- Mintek Dendrill Indonesia
- Indonesian Coal Mining Association
- Directorate Of Revenue Intelligence - India
- Georgia Ports Authority, United States
- Therma Luzon, Inc, Philippines
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- CNBM International Corporation - China
- Gujarat Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Aditya Birla Group - India
- Economic Council, Georgia
- Indian Energy Exchange, India
- Vizag Seaport Private Limited - India
- Heidelberg Cement - Germany
- New Zealand Coal & Carbon
- The University of Queensland
- The State Trading Corporation of India Ltd
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- OPG Power Generation Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Vedanta Resources Plc - India
- Karbindo Abesyapradhi - Indoneisa
- Meralco Power Generation, Philippines
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Eastern Energy - Thailand
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Ambuja Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- Baramulti Group, Indonesia
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Standard Chartered Bank - UAE
- Commonwealth Bank - Australia
- SMC Global Power, Philippines
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Uttam Galva Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- Sical Logistics Limited - India
- Global Business Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Malabar Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- ICICI Bank Limited - India
- Bulk Trading Sa - Switzerland
- AsiaOL BioFuels Corp., Philippines
- Power Finance Corporation Ltd., India
- Global Coal Blending Company Limited - Australia
- Borneo Indobara - Indonesia
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- Sojitz Corporation - Japan
- CIMB Investment Bank - Malaysia
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- Leighton Contractors Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Mercator Lines Limited - India
- Essar Steel Hazira Ltd - India
- Interocean Group of Companies - India
- GN Power Mariveles Coal Plant, Philippines
- GMR Energy Limited - India
- Mercuria Energy - Indonesia
- Parliament of New Zealand
- McConnell Dowell - Australia
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- Bangladesh Power Developement Board
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The Treasury - Australian Government
- Krishnapatnam Port Company Ltd. - India
- Iligan Light & Power Inc, Philippines
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Bhatia International Limited - India
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- Lanco Infratech Ltd - India
- Central Java Power - Indonesia
- Globalindo Alam Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
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