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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, 05 January 12
DRY BULK MARKET TAKES A PLUNGE OF LOW ACTIVITY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
As was widely expected the first days of the new year are characterized by significantly low chartering across the board of the dry bulk market, pus ...
Wednesday, 04 January 12
NEWBUILDING ORDERS PICKED UP IN 2011, BUT 2012 EXPECTED TO BE A DIFFERENT STORY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the BDI (Baltic Dry Index) starting the year on a sour note, losing 114 points and ending yesterday’s session, the first of the new year, ...
Wednesday, 04 January 12
MAHAGENCO TO IMPORT LOW MOISTURE COAL
COALspot.com - Maharashtra State Power Generation Co. Ltd. is the state power generation utility owned by Government of Maharashtra, intends to proc ...
Tuesday, 03 January 12
INDONESIA COAL REFERENCE PRICE FELL AGAIN
COALspot.com - Ministry of Energy and Mineral Resources of Indonesia has sets the January 2012 coal reference price at US$ 109.29 per ton or US$ 3.3 ...
Tuesday, 03 January 12
WHICH WAY WILL THE DRY BULK MARKET HEAD ON FIRST WEEK OF THE YEAR? - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Dry bulk ship owners will be wondering which way will the BDI (Baltic Dry Index), the industry’s benchmark, will head during the first days of ...
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- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Agrawal Coal Company - India
- Australian Commodity Traders Exchange
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Central Electricity Authority - India
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining and Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- SMC Global Power, Philippines
- IEA Clean Coal Centre - UK
- Vedanta Resources Plc - India
- Coalindo Energy - Indonesia
- Heidelberg Cement - Germany
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- Minerals Council of Australia
- Economic Council, Georgia
- Marubeni Corporation - India
- MS Steel International - UAE
- Electricity Authority, New Zealand
- Altura Mining Limited, Indonesia
- PNOC Exploration Corporation - Philippines
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- Georgia Ports Authority, United States
- Rio Tinto Coal - Australia
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Cigading International Bulk Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Vizag Seaport Private Limited - India
- Madhucon Powers Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Interocean Group of Companies - India
- Mjunction Services Limited - India
- Kideco Jaya Agung - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- PTC India Limited - India
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Kartika Selabumi Mining - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- Star Paper Mills Limited - India
- Mercator Lines Limited - India
- Price Waterhouse Coopers - Russia
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Straits Asia Resources Limited - Singapore
- Parliament of New Zealand
- Wood Mackenzie - Singapore
- Meralco Power Generation, Philippines
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- Sree Jayajothi Cements Limited - India
- PetroVietnam Power Coal Import and Supply Company
- SN Aboitiz Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Kaltim Prima Coal - Indonesia
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Sakthi Sugars Limited - India
- Africa Commodities Group - South Africa
- Renaissance Capital - South Africa
- GMR Energy Limited - India
- Larsen & Toubro Limited - India
- IHS Mccloskey Coal Group - USA
- Sojitz Corporation - Japan
- Banpu Public Company Limited - Thailand
- Baramulti Group, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Rashtriya Ispat Nigam Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Miang Besar Coal Terminal - Indonesia
- ICICI Bank Limited - India
- PowerSource Philippines DevCo
- Jindal Steel & Power Ltd - India
- Goldman Sachs - Singapore
- Asmin Koalindo Tuhup - Indonesia
- White Energy Company Limited
- Kumho Petrochemical, South Korea
- Tamil Nadu electricity Board
- Indonesian Coal Mining Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Antam Resourcindo - Indonesia
- Parry Sugars Refinery, India
- GVK Power & Infra Limited - India
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining Corp, Philippines
- Medco Energi Mining Internasional
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Manunggal Multi Energi - Indonesia
- Australian Coal Association
- Meenaskhi Energy Private Limited - India
- Energy Development Corp, Philippines
- Ministry of Mines - Canada
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Dalmia Cement Bharat India
- Formosa Plastics Group - Taiwan
- Toyota Tsusho Corporation, Japan
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Global Business Power Corporation, Philippines
- Aditya Birla Group - India
- Bukit Asam (Persero) Tbk - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- Directorate Of Revenue Intelligence - India
- CIMB Investment Bank - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Bhoruka Overseas - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Tata Chemicals Ltd - India
- Wilmar Investment Holdings
- LBH Netherlands Bv - Netherlands
- Orica Mining Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Malabar Cements Ltd - India
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- Samtan Co., Ltd - South Korea
- Energy Link Ltd, New Zealand
- Salva Resources Pvt Ltd - India
- VISA Power Limited - India
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- San Jose City I Power Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Savvy Resources Ltd - HongKong
- CNBM International Corporation - China
- The University of Queensland
- International Coal Ventures Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Videocon Industries ltd - India
- AsiaOL BioFuels Corp., Philippines
- Bangladesh Power Developement Board
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Global Coal Blending Company Limited - Australia
- Pendopo Energi Batubara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Grasim Industreis Ltd - India
- Binh Thuan Hamico - Vietnam
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- Bharathi Cement Corporation - India
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Globalindo Alam Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Indogreen Group - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- Eastern Coal Council - USA
- The State Trading Corporation of India Ltd
- London Commodity Brokers - England
- Posco Energy - South Korea
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- Indian Oil Corporation Limited
- McConnell Dowell - Australia
- TeaM Sual Corporation - Philippines
- Planning Commission, India
- Central Java Power - Indonesia
- Xindia Steels Limited - India
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