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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, 22 December 11
DRY BULK MARKET KEEPS LOSING TRACTION AHEAD OF HOLIDAY SEASON - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market kept retreating in the middle of the week, as charterers seem to be looking towards the holiday season and the start of the new ye ...
Tuesday, 20 December 11
THE COAL IMPORT INTO CHINA WAS QUIETER AS COAL STOCKS WERE AT HIGH LEVELS - BRS
The BDI ended the week at 1888 points (-1.8%), the BCI corrected to 3572 (-3.4%), the BPI was up at 1,775 (+3.6%), the BSI dropped to 1193 (-3.0%) a ...
Tuesday, 20 December 11
INDIA IMPORTS 66.41 PERCENT MORE COAL FROM INDONESIA LAST MONTH - SOURCES
COALspot.com: Indonesia, the world largest coal exporter, shipped 33.476* mln mt of coal in November, which is slightly higher than its Octobe ...
Monday, 19 December 11
KOPEX COMMITS ADDITIONAL ONE MILLION DOLLAR FOR PT TRANSCOAL MINERGY
COALspot.com - Mining contractor Kopex has agreed to extend a further US$1 million to finance the remainder of the expanded drill program at PT Tran ...
Monday, 19 December 11
PLN WILL NO LONGER BUY COAL FROM TRADERS
COALspot.com - Indonesia's state electricity company PT Perusahaan Listrik Negara will no longer allow traders to become their suppliers, said, its ...
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- Bulk Trading Sa - Switzerland
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- Directorate Of Revenue Intelligence - India
- Semirara Mining and Power Corporation, Philippines
- Australian Coal Association
- Tamil Nadu electricity Board
- Asmin Koalindo Tuhup - Indonesia
- Energy Link Ltd, New Zealand
- IEA Clean Coal Centre - UK
- Sindya Power Generating Company Private Ltd
- Bahari Cakrawala Sebuku - Indonesia
- White Energy Company Limited
- Mintek Dendrill Indonesia
- The State Trading Corporation of India Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Barasentosa Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Siam City Cement - Thailand
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Indian Energy Exchange, India
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Lanco Infratech Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pendopo Energi Batubara - Indonesia
- London Commodity Brokers - England
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Mining Services - Indonesia
- Trasteel International SA, Italy
- Therma Luzon, Inc, Philippines
- Africa Commodities Group - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Heidelberg Cement - Germany
- Siam City Cement PLC, Thailand
- Bharathi Cement Corporation - India
- Bhatia International Limited - India
- Economic Council, Georgia
- Singapore Mercantile Exchange
- Parry Sugars Refinery, India
- Carbofer General Trading SA - India
- Binh Thuan Hamico - Vietnam
- India Bulls Power Limited - India
- LBH Netherlands Bv - Netherlands
- Antam Resourcindo - Indonesia
- Jindal Steel & Power Ltd - India
- Coastal Gujarat Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- South Luzon Thermal Energy Corporation
- Neyveli Lignite Corporation Ltd, - India
- Cigading International Bulk Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- Standard Chartered Bank - UAE
- Indo Tambangraya Megah - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- MS Steel International - UAE
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Ambuja Cements Ltd - India
- Power Finance Corporation Ltd., India
- Videocon Industries ltd - India
- GMR Energy Limited - India
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- Global Business Power Corporation, Philippines
- Romanian Commodities Exchange
- Altura Mining Limited, Indonesia
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Aditya Birla Group - India
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Bukit Baiduri Energy - Indonesia
- Energy Development Corp, Philippines
- Essar Steel Hazira Ltd - India
- Bhoruka Overseas - Indonesia
- Formosa Plastics Group - Taiwan
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Star Paper Mills Limited - India
- Deloitte Consulting - India
- Billiton Holdings Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Agrawal Coal Company - India
- Banpu Public Company Limited - Thailand
- Chamber of Mines of South Africa
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- Renaissance Capital - South Africa
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- Xindia Steels Limited - India
- Orica Australia Pty. Ltd.
- Sical Logistics Limited - India
- Toyota Tsusho Corporation, Japan
- Riau Bara Harum - Indonesia
- Karaikal Port Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- GN Power Mariveles Coal Plant, Philippines
- ICICI Bank Limited - India
- Posco Energy - South Korea
- Straits Asia Resources Limited - Singapore
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Wilmar Investment Holdings
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- Commonwealth Bank - Australia
- SN Aboitiz Power Inc, Philippines
- Georgia Ports Authority, United States
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- IHS Mccloskey Coal Group - USA
- Meralco Power Generation, Philippines
- Miang Besar Coal Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sojitz Corporation - Japan
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Coal Council - USA
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- CNBM International Corporation - China
- Leighton Contractors Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- Chettinad Cement Corporation Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Merrill Lynch Commodities Europe
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- Ministry of Finance - Indonesia
- ASAPP Information Group - India
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Sakthi Sugars Limited - India
- Aboitiz Power Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- Kumho Petrochemical, South Korea
- Kartika Selabumi Mining - Indonesia
- GVK Power & Infra Limited - India
- Samtan Co., Ltd - South Korea
- Mercator Lines Limited - India
- Indian Oil Corporation Limited
- Oldendorff Carriers - Singapore
- PTC India Limited - India
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