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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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Wednesday, 14 December 11
MINER TOBA BARA SEJAHTRA PLANS IPO IN 1ST HALF OF 2012 - THE JAKARTA GLOBE
The Jakarta Globe reported that, Coal miner Toba Bara Sejahtra is aiming high next year, hoping to capitalize on renewed bullish sentiment in the lo ...
Wednesday, 14 December 11
TIMAH PLANS TO BOOST ITS COAL PRODUCTION TO TWO MILLION TONS PER ANNUM - SOURCES
COALspot.com - Timah plans to boost its coal production to two million tons per annum. The company also expects to acquire coal concession with mini ...
Wednesday, 14 December 11
BORNEO RESOURCE INVESTMENTS LTD. FINALIZES ACQUISITION OF INTEGRA PRIMA
COALspot.com - Borneo Resource Investments Ltd., announced that it has finalized the acquisition of an additional 1,300 hectare coal mining concessi ...
Tuesday, 13 December 11
BERAU COAL SCOUTS US$1.61 BIO SALES - INSIDER STORIES
Insider Stories reported that, coal mining company PT Berau Coal Energy Tbk (BRAU), that is 85% owned by London-listed company Bumi Plc, estimates a ...
Tuesday, 13 December 11
CAPESIZES AND PANAMAXES LEAD DRY BULK MARKET HIGHER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market inched closer to the 2,000 mark on Monday, with Panamaxes rebounding firmly and leading the gains. As a result, the industry&rsq ...
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- Star Paper Mills Limited - India
- SMC Global Power, Philippines
- Intertek Mineral Services - Indonesia
- London Commodity Brokers - England
- Planning Commission, India
- McConnell Dowell - Australia
- Minerals Council of Australia
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Straits Asia Resources Limited - Singapore
- Videocon Industries ltd - India
- Trasteel International SA, Italy
- Economic Council, Georgia
- Pipit Mutiara Jaya. PT, Indonesia
- OPG Power Generation Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Heidelberg Cement - Germany
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- Bhatia International Limited - India
- Sical Logistics Limited - India
- Central Java Power - Indonesia
- International Coal Ventures Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Baramulti Group, Indonesia
- Kartika Selabumi Mining - Indonesia
- Deloitte Consulting - India
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- Holcim Trading Pte Ltd - Singapore
- San Jose City I Power Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- White Energy Company Limited
- Georgia Ports Authority, United States
- Bharathi Cement Corporation - India
- Mercator Lines Limited - India
- Bulk Trading Sa - Switzerland
- TeaM Sual Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Larsen & Toubro Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Singapore Mercantile Exchange
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Marubeni Corporation - India
- Barasentosa Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Xindia Steels Limited - India
- Oldendorff Carriers - Singapore
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- PTC India Limited - India
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- European Bulk Services B.V. - Netherlands
- Toyota Tsusho Corporation, Japan
- Neyveli Lignite Corporation Ltd, - India
- Banpu Public Company Limited - Thailand
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Indika Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- Rashtriya Ispat Nigam Limited - India
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Mines - Canada
- Agrawal Coal Company - India
- Commonwealth Bank - Australia
- Standard Chartered Bank - UAE
- Binh Thuan Hamico - Vietnam
- Malabar Cements Ltd - India
- Anglo American - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Cement Manufacturers Association - India
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Parry Sugars Refinery, India
- Interocean Group of Companies - India
- Tamil Nadu electricity Board
- Chettinad Cement Corporation Ltd - India
- Aditya Birla Group - India
- Ambuja Cements Ltd - India
- Latin American Coal - Colombia
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Attock Cement Pakistan Limited
- Mjunction Services Limited - India
- New Zealand Coal & Carbon
- Pendopo Energi Batubara - Indonesia
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- India Bulls Power Limited - India
- Edison Trading Spa - Italy
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Makarim & Taira - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Global Coal Blending Company Limited - Australia
- Australian Coal Association
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Meenaskhi Energy Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Thai Mozambique Logistica
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- Sojitz Corporation - Japan
- AsiaOL BioFuels Corp., Philippines
- Indonesian Coal Mining Association
- Coalindo Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Therma Luzon, Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- The Treasury - Australian Government
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- The University of Queensland
- Orica Mining Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Tata Chemicals Ltd - India
- Uttam Galva Steels Limited - India
- Altura Mining Limited, Indonesia
- Parliament of New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Posco Energy - South Korea
- Karbindo Abesyapradhi - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Romanian Commodities Exchange
- Thiess Contractors Indonesia
- Coal and Oil Company - UAE
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- Merrill Lynch Commodities Europe
- Electricity Generating Authority of Thailand
- Kaltim Prima Coal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Grasim Industreis Ltd - India
- IHS Mccloskey Coal Group - USA
- Globalindo Alam Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- SMG Consultants - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indo Tambangraya Megah - Indonesia
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- Salva Resources Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Independent Power Producers Association of India
- Essar Steel Hazira Ltd - India
- Kideco Jaya Agung - Indonesia
- Siam City Cement PLC, Thailand
- Kalimantan Lumbung Energi - Indonesia
- Renaissance Capital - South Africa
- Madhucon Powers Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Wood Mackenzie - Singapore
- Manunggal Multi Energi - Indonesia
- Carbofer General Trading SA - India
- Directorate Of Revenue Intelligence - India
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Ministry of Finance - Indonesia
- Vizag Seaport Private Limited - India
- Timah Investasi Mineral - Indoneisa
- Antam Resourcindo - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Coastal Gujarat Power Limited - India
- Indian Energy Exchange, India
- Riau Bara Harum - Indonesia
- CIMB Investment Bank - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
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