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