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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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Monday, 16 January 12
BUMA MINED 2.7 MILLION TONS COAL LAST MONTH
COALspot.com - BUMA has mined 2.7 million tons (-14.1% YoY) coal last month and removed 25.8 million bcm (-5.6% YoY) overburden, according to compan ...
Sunday, 15 January 12
THE FREIGHT MARKET CONTINUED TO BLEED - VISTAAR
COALspot.com - "The markets continued to bleed with BDI touching almost 1000 points , almost reaching the collapse of 2008 levels," said C ...
Saturday, 14 January 12
GOLDEN MINES TO SUPPLY 4 MIO TONS - INSIDER STORIES
Insider Stories reported that, Coal miner under Sinarmas Group PT Golden Energy Mines Tbk (GEMS), a subsidiary of PT Dian Swastatika Sentosa Tbk (DS ...
Friday, 13 January 12
DIFFICULT START OF 2012 FOR DRY BULK MARKET SEEN HARD TO CHANGE IN THE COURSE OF THE YEAR, UNLESS DEMOLITION PICKS UP
The dry bulk market has been on a freefall this week after a rocky start to the new year. Yesterday, the BDI (Baltic Dry Index) the industry's benc ...
Thursday, 12 January 12
DRY BULK MARKET CRASHING AT START OF THE YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept being on freefall mode yesterday, with the industry's benchmark, the BDI (Baltic Dry Index) losing a massive 5.17% on ...
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- Maharashtra Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Minerals Council of Australia
- Electricity Authority, New Zealand
- Therma Luzon, Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- CNBM International Corporation - China
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Samtan Co., Ltd - South Korea
- Parliament of New Zealand
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Semirara Mining and Power Corporation, Philippines
- GMR Energy Limited - India
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- ASAPP Information Group - India
- Interocean Group of Companies - India
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- CIMB Investment Bank - Malaysia
- Australian Coal Association
- Georgia Ports Authority, United States
- MS Steel International - UAE
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Holcim Trading Pte Ltd - Singapore
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- Borneo Indobara - Indonesia
- Ind-Barath Power Infra Limited - India
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- Mintek Dendrill Indonesia
- Standard Chartered Bank - UAE
- Ambuja Cements Ltd - India
- Coal and Oil Company - UAE
- Gujarat Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Sarangani Energy Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- LBH Netherlands Bv - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Ministry of Finance - Indonesia
- Karaikal Port Pvt Ltd - India
- Larsen & Toubro Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Grasim Industreis Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- Siam City Cement PLC, Thailand
- Toyota Tsusho Corporation, Japan
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Bhoruka Overseas - Indonesia
- Tata Chemicals Ltd - India
- Binh Thuan Hamico - Vietnam
- Trasteel International SA, Italy
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Gujarat Sidhee Cement - India
- Lanco Infratech Ltd - India
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Altura Mining Limited, Indonesia
- McConnell Dowell - Australia
- Thiess Contractors Indonesia
- Madhucon Powers Ltd - India
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- Sinarmas Energy and Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Global Business Power Corporation, Philippines
- Latin American Coal - Colombia
- Baramulti Group, Indonesia
- Carbofer General Trading SA - India
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- Orica Mining Services - Indonesia
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Marubeni Corporation - India
- Jaiprakash Power Ventures ltd
- Banpu Public Company Limited - Thailand
- Port Waratah Coal Services - Australia
- White Energy Company Limited
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Dalmia Cement Bharat India
- Indo Tambangraya Megah - Indonesia
- Bhatia International Limited - India
- PowerSource Philippines DevCo
- Kartika Selabumi Mining - Indonesia
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- European Bulk Services B.V. - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Timah Investasi Mineral - Indoneisa
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Mercuria Energy - Indonesia
- New Zealand Coal & Carbon
- India Bulls Power Limited - India
- Indonesian Coal Mining Association
- Africa Commodities Group - South Africa
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Simpson Spence & Young - Indonesia
- Deloitte Consulting - India
- Renaissance Capital - South Africa
- Cement Manufacturers Association - India
- Jindal Steel & Power Ltd - India
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- Tamil Nadu electricity Board
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Miang Besar Coal Terminal - Indonesia
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Independent Power Producers Association of India
- Posco Energy - South Korea
- Bukit Baiduri Energy - Indonesia
- Energy Link Ltd, New Zealand
- Merrill Lynch Commodities Europe
- Rashtriya Ispat Nigam Limited - India
- Essar Steel Hazira Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Salva Resources Pvt Ltd - India
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- PTC India Limited - India
- The University of Queensland
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Wilmar Investment Holdings
- Coalindo Energy - Indonesia
- Vedanta Resources Plc - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Singapore Mercantile Exchange
- Planning Commission, India
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Economic Council, Georgia
- Indika Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- Orica Australia Pty. Ltd.
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Uttam Galva Steels Limited - India
- Coastal Gujarat Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Chettinad Cement Corporation Ltd - India
- Indogreen Group - Indonesia
- Vizag Seaport Private Limited - India
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- TNB Fuel Sdn Bhd - Malaysia
- Bharathi Cement Corporation - India
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- South Luzon Thermal Energy Corporation
- Formosa Plastics Group - Taiwan
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