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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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Tuesday, 07 February 12
DRY BULK MARKET FINALLY STOPS DECLINE, POSTS FIRST RISE IN MORE THAN A MONTH - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
After falling to near record lows, not seen since the mid-80s the dry bulk market has finally stopped its path to "hell", with the industr ...
Saturday, 04 February 12
SUPRAMAX DELIVERY SOUTH CHINA FOR TRIPS VIA INDONESIA WERE REPORTED AROUND $ 6,000 PER DAY - VISTAAR
COALspot.com - The markets continued to soften which dropped by almost 11 pct and BDI closing at 647 points.
The drop in BDI was mainly due to dr ...
Thursday, 02 February 12
NO RELIEF YET FOR DRY BULK SHIP OWNERS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Although at the start of 2012 nobody can claim that the global seaborne trade has suddenly come to a halt, quite the contrary, it seems that the dry ...
Wednesday, 01 February 12
KRISHNAPATNAM PORT - GOING DEEP TO SOAR HIGH
COALspot.com - Krishnapatnam Port now rightfully claims as the deepest draft port in India, as it has started accepting vessels with maximum permiss ...
Wednesday, 01 February 12
IN JAMBI, MOST MINING COMPANIES LACK 'CLEAR-AND-CLEAN' PERMITS - JP
More than three-quarters of the 386 mining companies in Jambi lack “clear-and-clean” certifications from the government, according to an ...
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- Sakthi Sugars Limited - India
- Indian Oil Corporation Limited
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- Energy Link Ltd, New Zealand
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- India Bulls Power Limited - India
- ICICI Bank Limited - India
- ASAPP Information Group - India
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- Lanco Infratech Ltd - India
- Malabar Cements Ltd - India
- Xindia Steels Limited - India
- Africa Commodities Group - South Africa
- Gujarat Sidhee Cement - India
- PowerSource Philippines DevCo
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Global Coal Blending Company Limited - Australia
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Electricity Generating Authority of Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Petron Corporation, Philippines
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- Indika Energy - Indonesia
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- Sarangani Energy Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Maheswari Brothers Coal Limited - India
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- SMC Global Power, Philippines
- Singapore Mercantile Exchange
- Toyota Tsusho Corporation, Japan
- Vijayanagar Sugar Pvt Ltd - India
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Standard Chartered Bank - UAE
- Cigading International Bulk Terminal - Indonesia
- CNBM International Corporation - China
- Formosa Plastics Group - Taiwan
- Baramulti Group, Indonesia
- Coal and Oil Company - UAE
- Romanian Commodities Exchange
- Banpu Public Company Limited - Thailand
- Sree Jayajothi Cements Limited - India
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- Semirara Mining Corp, Philippines
- Georgia Ports Authority, United States
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- PTC India Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Simpson Spence & Young - Indonesia
- Central Java Power - Indonesia
- Eastern Energy - Thailand
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Mercator Lines Limited - India
- Sical Logistics Limited - India
- Binh Thuan Hamico - Vietnam
- Gujarat Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Straits Asia Resources Limited - Singapore
- Jindal Steel & Power Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Riau Bara Harum - Indonesia
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Mercuria Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Commonwealth Bank - Australia
- Parry Sugars Refinery, India
- European Bulk Services B.V. - Netherlands
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- Oldendorff Carriers - Singapore
- Bulk Trading Sa - Switzerland
- Directorate Of Revenue Intelligence - India
- Tamil Nadu electricity Board
- Meenaskhi Energy Private Limited - India
- Sindya Power Generating Company Private Ltd
- Barasentosa Lestari - Indonesia
- Planning Commission, India
- Savvy Resources Ltd - HongKong
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- Port Waratah Coal Services - Australia
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Bhatia International Limited - India
- London Commodity Brokers - England
- Neyveli Lignite Corporation Ltd, - India
- Kohat Cement Company Ltd. - Pakistan
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Australian Commodity Traders Exchange
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Price Waterhouse Coopers - Russia
- Bharathi Cement Corporation - India
- GVK Power & Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- Parliament of New Zealand
- GN Power Mariveles Coal Plant, Philippines
- Posco Energy - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Ceylon Electricity Board - Sri Lanka
- Indogreen Group - Indonesia
- Star Paper Mills Limited - India
- Indian Energy Exchange, India
- Rashtriya Ispat Nigam Limited - India
- AsiaOL BioFuels Corp., Philippines
- VISA Power Limited - India
- Australian Coal Association
- Ministry of Mines - Canada
- Iligan Light & Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- GMR Energy Limited - India
- Krishnapatnam Port Company Ltd. - India
- Heidelberg Cement - Germany
- New Zealand Coal & Carbon
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- Ministry of Transport, Egypt
- The Treasury - Australian Government
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Mintek Dendrill Indonesia
- Mjunction Services Limited - India
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Ambuja Cements Ltd - India
- Economic Council, Georgia
- Bangladesh Power Developement Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- SN Aboitiz Power Inc, Philippines
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Agrawal Coal Company - India
- Wood Mackenzie - Singapore
- Bhoruka Overseas - Indonesia
- Videocon Industries ltd - India
- Kapuas Tunggal Persada - Indonesia
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- Aboitiz Power Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Cement Manufacturers Association - India
- Miang Besar Coal Terminal - Indonesia
- Dalmia Cement Bharat India
- Kumho Petrochemical, South Korea
- Jorong Barutama Greston.PT - Indonesia
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Grasim Industreis Ltd - India
- Eastern Coal Council - USA
- IEA Clean Coal Centre - UK
- Kepco SPC Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Intertek Mineral Services - Indonesia
- White Energy Company Limited
- Coalindo Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Indonesian Coal Mining Association
- Makarim & Taira - Indonesia
- Borneo Indobara - Indonesia
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- Edison Trading Spa - Italy
- Anglo American - United Kingdom
- Salva Resources Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Antam Resourcindo - Indonesia
- PNOC Exploration Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- McConnell Dowell - Australia
- Bukit Baiduri Energy - Indonesia
- Therma Luzon, Inc, Philippines
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