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