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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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Sunday, 08 January 12
THARPAK CONSORTIUM FORMED TO DEVELOP MEGA ENERGY COMPLEX IN SINDH PROVINCE, PAKISTAN
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CLARIDEN GLOBAL BRINGS YOU INDONESIA MINING 2012
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THE PANAMAX MARKET EXPERIENCED A SLOW START TO 2012 - FEARNLEYS AS
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- Interocean Group of Companies - India
- Dalmia Cement Bharat India
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- Bharathi Cement Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Savvy Resources Ltd - HongKong
- CNBM International Corporation - China
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- Thiess Contractors Indonesia
- SN Aboitiz Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Meralco Power Generation, Philippines
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- Indo Tambangraya Megah - Indonesia
- MS Steel International - UAE
- IHS Mccloskey Coal Group - USA
- Samtan Co., Ltd - South Korea
- GMR Energy Limited - India
- VISA Power Limited - India
- Medco Energi Mining Internasional
- Central Electricity Authority - India
- Ministry of Finance - Indonesia
- Xindia Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- Gujarat Sidhee Cement - India
- Orica Mining Services - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Global Green Power PLC Corporation, Philippines
- Indogreen Group - Indonesia
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- Borneo Indobara - Indonesia
- Coastal Gujarat Power Limited - India
- Oldendorff Carriers - Singapore
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aditya Birla Group - India
- Energy Link Ltd, New Zealand
- Altura Mining Limited, Indonesia
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- Alfred C Toepfer International GmbH - Germany
- Mercator Lines Limited - India
- Vedanta Resources Plc - India
- Georgia Ports Authority, United States
- Star Paper Mills Limited - India
- Aboitiz Power Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Eastern Coal Council - USA
- Trasteel International SA, Italy
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Semirara Mining Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Madhucon Powers Ltd - India
- Malabar Cements Ltd - India
- Marubeni Corporation - India
- TeaM Sual Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Carbofer General Trading SA - India
- Kaltim Prima Coal - Indonesia
- SMG Consultants - Indonesia
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kideco Jaya Agung - Indonesia
- Videocon Industries ltd - India
- Indian Energy Exchange, India
- Timah Investasi Mineral - Indoneisa
- Vizag Seaport Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Singapore Mercantile Exchange
- Ministry of Mines - Canada
- PetroVietnam Power Coal Import and Supply Company
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Bayan Resources Tbk. - Indonesia
- Posco Energy - South Korea
- Baramulti Group, Indonesia
- Global Business Power Corporation, Philippines
- The Treasury - Australian Government
- Bhatia International Limited - India
- Renaissance Capital - South Africa
- Standard Chartered Bank - UAE
- Parliament of New Zealand
- Indian Oil Corporation Limited
- Goldman Sachs - Singapore
- Orica Australia Pty. Ltd.
- Petrochimia International Co. Ltd.- Taiwan
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- AsiaOL BioFuels Corp., Philippines
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- Bulk Trading Sa - Switzerland
- Kartika Selabumi Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- India Bulls Power Limited - India
- Metalloyd Limited - United Kingdom
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Iligan Light & Power Inc, Philippines
- PowerSource Philippines DevCo
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Deloitte Consulting - India
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Commonwealth Bank - Australia
- Ministry of Transport, Egypt
- Energy Development Corp, Philippines
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Directorate Of Revenue Intelligence - India
- Billiton Holdings Pty Ltd - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Formosa Plastics Group - Taiwan
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Minerals Council of Australia
- Larsen & Toubro Limited - India
- Jorong Barutama Greston.PT - Indonesia
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Ambuja Cements Ltd - India
- Merrill Lynch Commodities Europe
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Electricity Generating Authority of Thailand
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Karbindo Abesyapradhi - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Cigading International Bulk Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- Coal and Oil Company - UAE
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Ind-Barath Power Infra Limited - India
- ICICI Bank Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Barasentosa Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Sindya Power Generating Company Private Ltd
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Sical Logistics Limited - India
- Banpu Public Company Limited - Thailand
- Miang Besar Coal Terminal - Indonesia
- Electricity Authority, New Zealand
- Antam Resourcindo - Indonesia
- White Energy Company Limited
- Australian Coal Association
- Bukit Makmur.PT - Indonesia
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Tamil Nadu electricity Board
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Mercuria Energy - Indonesia
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thai Mozambique Logistica
- Bhushan Steel Limited - India
- Leighton Contractors Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Bangladesh Power Developement Board
- Intertek Mineral Services - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Pendopo Energi Batubara - Indonesia
- Rio Tinto Coal - Australia
- International Coal Ventures Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
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