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