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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, 24 January 12
BUKIT ASAM FY11 NET PROFIT SURGES 50% - INSIDER STORIES
Insider Stories reported that, the state-controlled PT Bukit Asam Tbk (PTBA) estimated to book Rp3 trillion (approximately US$ 335,570,469) net prof ...
Sunday, 22 January 12
FREIGHT MARKET DROPPED TO THE LOWEST LEVEL SINCE 2008
COALspot.com - "The markets continued to soften almost reaching 2008 levels breaking the 1,000 point mark", said Capt. Reddy of Vistaar Sh ...
Saturday, 21 January 12
ASIAS PREMIER COMPREHENSIVE OPEN CUT MINING CONFERENCE SCHEDULED FOR FEBRUARY 2012
As the only such conference in the region for miners and service providers, IBC Asia’s Open Cut Mine Planning & Operational Excellence con ...
Saturday, 21 January 12
COAL MARKETS CELEBRATES A DECADE OF BRINGING BUYERS & SELLERS TOGETHER
In 2012, IBC Asia’s premier Coal Markets conference series – Asia’s only globally focused coal import, export and supply chain eve ...
Saturday, 21 January 12
SAMIN TAN COMPLETES BUMI PLC TAKEOVER - INSIDER STORIES
Insider Stories reported that, Indonesian coking coal miner PT Borneo Lumbung Energi & Metal Tbk (BORN), that is controlled by stellar businessm ...
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- Bhoruka Overseas - Indonesia
- OPG Power Generation Pvt Ltd - India
- PowerSource Philippines DevCo
- Jorong Barutama Greston.PT - Indonesia
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- Malabar Cements Ltd - India
- Mercuria Energy - Indonesia
- The Treasury - Australian Government
- Price Waterhouse Coopers - Russia
- Coalindo Energy - Indonesia
- Kumho Petrochemical, South Korea
- Directorate General of MIneral and Coal - Indonesia
- Indika Energy - Indonesia
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Makarim & Taira - Indonesia
- Kartika Selabumi Mining - Indonesia
- Borneo Indobara - Indonesia
- Aboitiz Power Corporation - Philippines
- White Energy Company Limited
- India Bulls Power Limited - India
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Dalmia Cement Bharat India
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- IEA Clean Coal Centre - UK
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- International Coal Ventures Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Trasteel International SA, Italy
- Barasentosa Lestari - Indonesia
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- GN Power Mariveles Coal Plant, Philippines
- Africa Commodities Group - South Africa
- Gujarat Sidhee Cement - India
- Ind-Barath Power Infra Limited - India
- Orica Mining Services - Indonesia
- PNOC Exploration Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Vizag Seaport Private Limited - India
- Eastern Energy - Thailand
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- Sical Logistics Limited - India
- Meenaskhi Energy Private Limited - India
- Edison Trading Spa - Italy
- Indo Tambangraya Megah - Indonesia
- Kideco Jaya Agung - Indonesia
- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- Leighton Contractors Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- London Commodity Brokers - England
- ASAPP Information Group - India
- Gujarat Mineral Development Corp Ltd - India
- TeaM Sual Corporation - Philippines
- Deloitte Consulting - India
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- San Jose City I Power Corp, Philippines
- Mintek Dendrill Indonesia
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Rashtriya Ispat Nigam Limited - India
- GAC Shipping (India) Pvt Ltd
- Bulk Trading Sa - Switzerland
- Jaiprakash Power Ventures ltd
- Jindal Steel & Power Ltd - India
- Salva Resources Pvt Ltd - India
- Marubeni Corporation - India
- Australian Commodity Traders Exchange
- Medco Energi Mining Internasional
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karaikal Port Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- Globalindo Alam Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Holcim Trading Pte Ltd - Singapore
- Xindia Steels Limited - India
- Romanian Commodities Exchange
- Mjunction Services Limited - India
- Global Coal Blending Company Limited - Australia
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Thai Mozambique Logistica
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Metalloyd Limited - United Kingdom
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Petron Corporation, Philippines
- Indonesian Coal Mining Association
- AsiaOL BioFuels Corp., Philippines
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- Intertek Mineral Services - Indonesia
- Rio Tinto Coal - Australia
- Electricity Authority, New Zealand
- Pendopo Energi Batubara - Indonesia
- Merrill Lynch Commodities Europe
- Manunggal Multi Energi - Indonesia
- Australian Coal Association
- Heidelberg Cement - Germany
- Therma Luzon, Inc, Philippines
- ICICI Bank Limited - India
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Minerals Council of Australia
- Madhucon Powers Ltd - India
- Straits Asia Resources Limited - Singapore
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Oldendorff Carriers - Singapore
- SN Aboitiz Power Inc, Philippines
- MS Steel International - UAE
- Essar Steel Hazira Ltd - India
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- VISA Power Limited - India
- Central Electricity Authority - India
- Coal and Oil Company - UAE
- Kepco SPC Power Corporation, Philippines
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Bukit Baiduri Energy - Indonesia
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sinarmas Energy and Mining - Indonesia
- LBH Netherlands Bv - Netherlands
- SMG Consultants - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Transport, Egypt
- Billiton Holdings Pty Ltd - Australia
- Bharathi Cement Corporation - India
- Tamil Nadu electricity Board
- Wilmar Investment Holdings
- Cement Manufacturers Association - India
- South Luzon Thermal Energy Corporation
- Videocon Industries ltd - India
- Central Java Power - Indonesia
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- Economic Council, Georgia
- Anglo American - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Bangladesh Power Developement Board
- Grasim Industreis Ltd - India
- Commonwealth Bank - Australia
- The University of Queensland
- Indian Energy Exchange, India
- Thiess Contractors Indonesia
- Sojitz Corporation - Japan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TNB Fuel Sdn Bhd - Malaysia
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- Neyveli Lignite Corporation Ltd, - India
- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Energy Development Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Lanco Infratech Ltd - India
- Ambuja Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- Standard Chartered Bank - UAE
- Singapore Mercantile Exchange
- Ministry of Mines - Canada
- Sindya Power Generating Company Private Ltd
- Port Waratah Coal Services - Australia
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- Coastal Gujarat Power Limited - India
- Bukit Makmur.PT - Indonesia
- Carbofer General Trading SA - India
- The State Trading Corporation of India Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Power Finance Corporation Ltd., India
- Independent Power Producers Association of India
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