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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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Thursday, 19 January 12
SOUTHGOBI RESOURCES SELLS MORE THAN FOUR MILLION TONNES OF COAL IN 2011, 58% MORE THAN 2010
COALspot.com - SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) has successfully complets year 2011 on guidance in terms of coal sales and production.
...
Thursday, 19 January 12
14TH VOGP MEETING IN HO CHI MINH CITY HANDS OUT LATEST UPDATES AND DEVELOPMENTS IN VIETNAM'S ENERGY INDUSTRY
Press Release: At upcoming 14th Vietnam Oil Gas Power on 27-28 Feb in Ho Chi Minh City the industry’s most influential names including Petrovi ...
Thursday, 19 January 12
DELTA DUNIA SEALS US$820 MIO CONTRACT INSIDER STORIES
Insider Stories reported that, PT Delta Dunia Makmur Tbk (DOID) has announced that its primary operating subsidiary, PT Bukit Makmur Mandiri Utama ( ...
Wednesday, 18 January 12
WARM WINTER ACROSS EUROPE HAS IMPACTED NEGATIVELY COAL DEMAND - BRS
With the Chinese New Year just a week away, all markets are slowing down. The drop in freight rates for all sizes has been significant over the past ...
Wednesday, 18 January 12
DRY BULK MARKET'S DRAMA CONTINUES IN START OF NEW WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A flurry of newbuilding deliveries, coupled with a slow start to the new year, a typical trend for the dry bulk market, has led the industry's benc ...
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- Energy Link Ltd, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Mercator Lines Limited - India
- Romanian Commodities Exchange
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- Central Electricity Authority - India
- Power Finance Corporation Ltd., India
- Gujarat Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Thiess Contractors Indonesia
- Meralco Power Generation, Philippines
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- The Treasury - Australian Government
- Economic Council, Georgia
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- MS Steel International - UAE
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Straits Asia Resources Limited - Singapore
- Lanco Infratech Ltd - India
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Electricity Authority, New Zealand
- Vizag Seaport Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Formosa Plastics Group - Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- Binh Thuan Hamico - Vietnam
- Tata Chemicals Ltd - India
- SMG Consultants - Indonesia
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- SN Aboitiz Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Metalloyd Limited - United Kingdom
- Sojitz Corporation - Japan
- Directorate General of MIneral and Coal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- Aditya Birla Group - India
- Iligan Light & Power Inc, Philippines
- Marubeni Corporation - India
- Kaltim Prima Coal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Sical Logistics Limited - India
- Mjunction Services Limited - India
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Globalindo Alam Lestari - Indonesia
- Wood Mackenzie - Singapore
- Kapuas Tunggal Persada - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Orica Mining Services - Indonesia
- Tamil Nadu electricity Board
- Anglo American - United Kingdom
- Grasim Industreis Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Deloitte Consulting - India
- Siam City Cement PLC, Thailand
- Directorate Of Revenue Intelligence - India
- Xindia Steels Limited - India
- Mercuria Energy - Indonesia
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Chamber of Mines of South Africa
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- Australian Coal Association
- Thai Mozambique Logistica
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- GAC Shipping (India) Pvt Ltd
- Agrawal Coal Company - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Kobexindo Tractors - Indoneisa
- Gujarat Sidhee Cement - India
- Dalmia Cement Bharat India
- Holcim Trading Pte Ltd - Singapore
- India Bulls Power Limited - India
- Australian Commodity Traders Exchange
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- GMR Energy Limited - India
- Manunggal Multi Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- White Energy Company Limited
- Independent Power Producers Association of India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bangladesh Power Developement Board
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- PTC India Limited - India
- Maheswari Brothers Coal Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement - Thailand
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The University of Queensland
- Singapore Mercantile Exchange
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Ceylon Electricity Board - Sri Lanka
- Kalimantan Lumbung Energi - Indonesia
- Central Java Power - Indonesia
- Ind-Barath Power Infra Limited - India
- PowerSource Philippines DevCo
- LBH Netherlands Bv - Netherlands
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coalindo Energy - Indonesia
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- Indo Tambangraya Megah - Indonesia
- Altura Mining Limited, Indonesia
- Planning Commission, India
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Sakthi Sugars Limited - India
- Coastal Gujarat Power Limited - India
- Jaiprakash Power Ventures ltd
- Antam Resourcindo - Indonesia
- Uttam Galva Steels Limited - India
- Riau Bara Harum - Indonesia
- Ambuja Cements Ltd - India
- Heidelberg Cement - Germany
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- Bayan Resources Tbk. - Indonesia
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- Sree Jayajothi Cements Limited - India
- Parry Sugars Refinery, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- Ministry of Mines - Canada
- Georgia Ports Authority, United States
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Posco Energy - South Korea
- Aboitiz Power Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- International Coal Ventures Pvt Ltd - India
- Star Paper Mills Limited - India
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Goldman Sachs - Singapore
- Cigading International Bulk Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- Chettinad Cement Corporation Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bukit Makmur.PT - Indonesia
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