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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, 02 January 12
THE PROMISE OF INDIA: A BRIEF INTERRUPTION? - CLARKSONS / HELLENIC SHIPPING
Future growth in Indian seaborne coal imports has sometimes been considered as one of the largest potential upsides in the currently oversupplied dr ...
Sunday, 01 January 12
IS INDIA FOLLOWING INDONESIA TO STANDARDIZE COAL PRICES TO GET MAXIMUM BENEFITS?
COALspot.com - Coal India limited, an Indian state owned and world largest coal producer has introduced gross calorific value (GCV) based pricing me ...
Saturday, 31 December 11
GLOBALCOAL NEWC INDEX SURGED 2.32 PERCENT
COALspot.com - globalCOAL index in Newcastle Port, benchmark for Asian market, ended substantially higher, surged 2.32 percent to US$115.47 per ...
Saturday, 31 December 11
BORNEO LUMBUNG TO BUY BUMI STAKE, SWAP CEO - THE JAKARTA GLOBE
The Jakarta Globe, one of the leading english news paper in Indonesia reported yesterday, shareholders of Indonesian coking coal miner Borneo Lumbun ...
Friday, 30 December 11
CENTRAL GOVERNMENT SHOULD ISSUE PERMITS - THE JAKARTA POST
The Jakarta Post reported that, business associations from both the palm oil and mining sectors have suggested that the central government should re ...
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Showing 4906 to 4910 news of total 6871 |
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- Intertek Mineral Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Wilmar Investment Holdings
- Barasentosa Lestari - Indonesia
- Economic Council, Georgia
- Standard Chartered Bank - UAE
- Vedanta Resources Plc - India
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- ASAPP Information Group - India
- Deloitte Consulting - India
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
- Baramulti Group, Indonesia
- Gujarat Sidhee Cement - India
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- The University of Queensland
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- LBH Netherlands Bv - Netherlands
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- Aditya Birla Group - India
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- Posco Energy - South Korea
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- IHS Mccloskey Coal Group - USA
- Georgia Ports Authority, United States
- Videocon Industries ltd - India
- Interocean Group of Companies - India
- Riau Bara Harum - Indonesia
- Port Waratah Coal Services - Australia
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Coastal Gujarat Power Limited - India
- Semirara Mining Corp, Philippines
- ICICI Bank Limited - India
- Kaltim Prima Coal - Indonesia
- Bhatia International Limited - India
- Bangladesh Power Developement Board
- Ceylon Electricity Board - Sri Lanka
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Latin American Coal - Colombia
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
- Mjunction Services Limited - India
- PowerSource Philippines DevCo
- Global Green Power PLC Corporation, Philippines
- Jaiprakash Power Ventures ltd
- European Bulk Services B.V. - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Finance - Indonesia
- Billiton Holdings Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- MS Steel International - UAE
- Larsen & Toubro Limited - India
- India Bulls Power Limited - India
- Medco Energi Mining Internasional
- Dalmia Cement Bharat India
- Edison Trading Spa - Italy
- Sindya Power Generating Company Private Ltd
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Thiess Contractors Indonesia
- Commonwealth Bank - Australia
- CIMB Investment Bank - Malaysia
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- McConnell Dowell - Australia
- Agrawal Coal Company - India
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Coal and Oil Company - UAE
- Kohat Cement Company Ltd. - Pakistan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tamil Nadu electricity Board
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Attock Cement Pakistan Limited
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Thai Mozambique Logistica
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Planning Commission, India
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- Ministry of Mines - Canada
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Timah Investasi Mineral - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Electricity Generating Authority of Thailand
- Chettinad Cement Corporation Ltd - India
- Manunggal Multi Energi - Indonesia
- Samtan Co., Ltd - South Korea
- SMG Consultants - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Marubeni Corporation - India
- Essar Steel Hazira Ltd - India
- Binh Thuan Hamico - Vietnam
- SN Aboitiz Power Inc, Philippines
- Energy Link Ltd, New Zealand
- Indika Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- Therma Luzon, Inc, Philippines
- Merrill Lynch Commodities Europe
- Tata Chemicals Ltd - India
- Kapuas Tunggal Persada - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- Banpu Public Company Limited - Thailand
- Heidelberg Cement - Germany
- Minerals Council of Australia
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Karaikal Port Pvt Ltd - India
- Madhucon Powers Ltd - India
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Global Coal Blending Company Limited - Australia
- Semirara Mining and Power Corporation, Philippines
- Mercator Lines Limited - India
- Orica Australia Pty. Ltd.
- Central Electricity Authority - India
- Bhushan Steel Limited - India
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Anglo American - United Kingdom
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Carbofer General Trading SA - India
- Kartika Selabumi Mining - Indonesia
- Chamber of Mines of South Africa
- Energy Development Corp, Philippines
- Central Java Power - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Malabar Cements Ltd - India
- Power Finance Corporation Ltd., India
- Krishnapatnam Port Company Ltd. - India
- Sarangani Energy Corporation, Philippines
- Sakthi Sugars Limited - India
- Cement Manufacturers Association - India
- Bulk Trading Sa - Switzerland
- Parliament of New Zealand
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- South Luzon Thermal Energy Corporation
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- Indian Energy Exchange, India
- Coalindo Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Rio Tinto Coal - Australia
- Maharashtra Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Mintek Dendrill Indonesia
- GAC Shipping (India) Pvt Ltd
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