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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, 12 December 11
DRY BULK MARKET LOOKING FOR BALANCE AS WE ENTER 2012 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
During the past few months, freight rates for dry bulk carriers, especially Capesizes have increased significantly, providing ship owners with a muc ...
Sunday, 11 December 11
THE PANAMAX INDEX ENDED ON POSITIVE DIRECTION - VISTAAR
COALspot.com - The BDI and Cape index continued the upward trend this week also with BDI up by 3.00 pct closing at 1,922 points and Cape index up by ...
Saturday, 10 December 11
MAHAKAM RIVER RESUMES COAL TRANSPORTATION
COALspot.com - East Kalimantan local government has resumed limited coal barging through Mahakam River after two weeks of suspension following the c ...
Friday, 09 December 11
DRY BULK MARKET REBOUNDS ON HEALTHIER DEMAND OUTLOOK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market edged forward yesterday, at the highest rate of the past couple of weeks, as a result of stonger iron ore demand, backed by lowe ...
Thursday, 08 December 11
INDIA MAY SEE 41% ANNUAL GROWTH OF ITS COAL DEMAND DURING THE NEXT 5 YEARS - ICAP SHIPPING
India’s Ministry of Coal expects that India’s coal demand may face an annual 41% rise during the next 5 years, while its coal deficit is ...
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- Jindal Steel & Power Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- Coalindo Energy - Indonesia
- Indogreen Group - Indonesia
- The Treasury - Australian Government
- Parliament of New Zealand
- Bangladesh Power Developement Board
- The University of Queensland
- Grasim Industreis Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Parry Sugars Refinery, India
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- Tata Chemicals Ltd - India
- India Bulls Power Limited - India
- Larsen & Toubro Limited - India
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Orica Australia Pty. Ltd.
- New Zealand Coal & Carbon
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Coal and Oil Company - UAE
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- Videocon Industries ltd - India
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- VISA Power Limited - India
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Australian Commodity Traders Exchange
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Semirara Mining and Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- CNBM International Corporation - China
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Siam City Cement - Thailand
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- TeaM Sual Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Renaissance Capital - South Africa
- White Energy Company Limited
- Indian Oil Corporation Limited
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- PetroVietnam Power Coal Import and Supply Company
- Borneo Indobara - Indonesia
- Pendopo Energi Batubara - Indonesia
- Wilmar Investment Holdings
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- Straits Asia Resources Limited - Singapore
- Salva Resources Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Dalmia Cement Bharat India
- Bulk Trading Sa - Switzerland
- Therma Luzon, Inc, Philippines
- Goldman Sachs - Singapore
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- Simpson Spence & Young - Indonesia
- Cement Manufacturers Association - India
- Rashtriya Ispat Nigam Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- Chamber of Mines of South Africa
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Thai Mozambique Logistica
- Kalimantan Lumbung Energi - Indonesia
- Marubeni Corporation - India
- Mercuria Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Thiess Contractors Indonesia
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- Kohat Cement Company Ltd. - Pakistan
- GMR Energy Limited - India
- Power Finance Corporation Ltd., India
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- Globalindo Alam Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- Xindia Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Barasentosa Lestari - Indonesia
- Posco Energy - South Korea
- PTC India Limited - India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Minerals Council of Australia
- Indo Tambangraya Megah - Indonesia
- Sical Logistics Limited - India
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Heidelberg Cement - Germany
- Economic Council, Georgia
- Leighton Contractors Pty Ltd - Australia
- Energy Development Corp, Philippines
- Attock Cement Pakistan Limited
- Bharathi Cement Corporation - India
- Medco Energi Mining Internasional
- Independent Power Producers Association of India
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- MS Steel International - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- Asmin Koalindo Tuhup - Indonesia
- Aboitiz Power Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Formosa Plastics Group - Taiwan
- Indonesian Coal Mining Association
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- Jaiprakash Power Ventures ltd
- Kapuas Tunggal Persada - Indonesia
- Indian Energy Exchange, India
- Bukit Baiduri Energy - Indonesia
- Baramulti Group, Indonesia
- Chettinad Cement Corporation Ltd - India
- Carbofer General Trading SA - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Intertek Mineral Services - Indonesia
- Planning Commission, India
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- South Luzon Thermal Energy Corporation
- PNOC Exploration Corporation - Philippines
- Rio Tinto Coal - Australia
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- European Bulk Services B.V. - Netherlands
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- Ambuja Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Merrill Lynch Commodities Europe
- Cigading International Bulk Terminal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Malabar Cements Ltd - India
- Mercator Lines Limited - India
- IEA Clean Coal Centre - UK
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Electricity Generating Authority of Thailand
- Uttam Galva Steels Limited - India
- Deloitte Consulting - India
- Savvy Resources Ltd - HongKong
- Indika Energy - Indonesia
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Price Waterhouse Coopers - Russia
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Sree Jayajothi Cements Limited - India
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