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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, 05 December 11
SGX LAUNCHED IHS MCCLOSKEY/XINHUA INFOLINK OTC CFR SOUTH CHINA COAL CONTRACT TODAY
COALspot.com - In order to meet the demand of the coal industry for an effective coal hedging tool with counterparty credit risk mitigation facility ...
Monday, 05 December 11
DRY BULK RATES LOOKING TO EXTEND GAINS THIS WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Capesize dry bulk carrier owners have had a great week, with rates rising for six straight sessions (including the end of the week before that). As ...
Sunday, 04 December 11
SUPRAMAX TRIPS VIA INDONESIA WERE REPORTED AROUND $ 7500 - 8000 PD
COALspot.com - The BDI and Cape index recovered this week. The BDI was up by 3.26 pct and Cape index saw a big jump and closed at 3409 points (up by ...
Saturday, 03 December 11
BORNEO TO SPEND US$600 MIO CAPEX - INSIDER STORIES
Insider Stories reported that, Coking coal miner PT Borneo Lumbung Energi & Metal Tbk (BORN) plans to spend US$600 million capital expenditure ( ...
Friday, 02 December 11
DRY BULK CARRIERS BACK IN THE SPOTLIGHT AS MARKET SPEEDS UP - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the tanker and container markets suffering dearly, it seems that the tide has once again turned in favor of the dry bulk carriers, despite over ...
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- MS Steel International - UAE
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Siam City Cement PLC, Thailand
- AsiaOL BioFuels Corp., Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Kobexindo Tractors - Indoneisa
- Parliament of New Zealand
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Intertek Mineral Services - Indonesia
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- Aditya Birla Group - India
- New Zealand Coal & Carbon
- Essar Steel Hazira Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Carbofer General Trading SA - India
- Banpu Public Company Limited - Thailand
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- CIMB Investment Bank - Malaysia
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- Aboitiz Power Corporation - Philippines
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Mintek Dendrill Indonesia
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- Thai Mozambique Logistica
- Posco Energy - South Korea
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Indian Oil Corporation Limited
- Indogreen Group - Indonesia
- Economic Council, Georgia
- TeaM Sual Corporation - Philippines
- Antam Resourcindo - Indonesia
- Ministry of Mines - Canada
- Larsen & Toubro Limited - India
- Bhoruka Overseas - Indonesia
- Indo Tambangraya Megah - Indonesia
- Straits Asia Resources Limited - Singapore
- Cement Manufacturers Association - India
- Wilmar Investment Holdings
- Ambuja Cements Ltd - India
- Petron Corporation, Philippines
- Vizag Seaport Private Limited - India
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Ceylon Electricity Board - Sri Lanka
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- VISA Power Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Madhucon Powers Ltd - India
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- Altura Mining Limited, Indonesia
- South Luzon Thermal Energy Corporation
- ICICI Bank Limited - India
- Globalindo Alam Lestari - Indonesia
- Sical Logistics Limited - India
- PowerSource Philippines DevCo
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- Africa Commodities Group - South Africa
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Central Java Power - Indonesia
- Planning Commission, India
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Maharashtra Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- White Energy Company Limited
- Malabar Cements Ltd - India
- Romanian Commodities Exchange
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Xindia Steels Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Makmur.PT - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- Sakthi Sugars Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- Sindya Power Generating Company Private Ltd
- Electricity Generating Authority of Thailand
- Mercuria Energy - Indonesia
- Grasim Industreis Ltd - India
- Bayan Resources Tbk. - Indonesia
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Barasentosa Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Baramulti Group, Indonesia
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- Bukit Baiduri Energy - Indonesia
- Renaissance Capital - South Africa
- European Bulk Services B.V. - Netherlands
- Thiess Contractors Indonesia
- Central Electricity Authority - India
- GAC Shipping (India) Pvt Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Energy Exchange, India
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Independent Power Producers Association of India
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Deloitte Consulting - India
- Merrill Lynch Commodities Europe
- Mercator Lines Limited - India
- Lanco Infratech Ltd - India
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- Goldman Sachs - Singapore
- India Bulls Power Limited - India
- Chettinad Cement Corporation Ltd - India
- Therma Luzon, Inc, Philippines
- Agrawal Coal Company - India
- Sojitz Corporation - Japan
- Samtan Co., Ltd - South Korea
- Miang Besar Coal Terminal - Indonesia
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Orica Mining Services - Indonesia
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Videocon Industries ltd - India
- Price Waterhouse Coopers - Russia
- Kapuas Tunggal Persada - Indonesia
- Simpson Spence & Young - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- SMG Consultants - Indonesia
- Riau Bara Harum - Indonesia
- Power Finance Corporation Ltd., India
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Jaiprakash Power Ventures ltd
- Interocean Group of Companies - India
- Directorate General of MIneral and Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Savvy Resources Ltd - HongKong
- Star Paper Mills Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Commonwealth Bank - Australia
- The State Trading Corporation of India Ltd
- Heidelberg Cement - Germany
- Billiton Holdings Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Kepco SPC Power Corporation, Philippines
- PTC India Limited - India
- Edison Trading Spa - Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Tamil Nadu electricity Board
- IEA Clean Coal Centre - UK
- Bhatia International Limited - India
- Semirara Mining and Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- GVK Power & Infra Limited - India
- Coastal Gujarat Power Limited - India
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Energy Development Corp, Philippines
- The Treasury - Australian Government
- Sarangani Energy Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Chamber of Mines of South Africa
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