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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, 01 December 11
DRY BULK MARKET RISES TO NEW HEIGHTS ON RENEWED DEMAND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has kept on rising this week, with the industry’s benchmark, the Baltic Dry Index (BDI) climbing to 1,846 points on Wednes ...
Tuesday, 29 November 11
SOUTH AFRICAN COAL INTO CHINA, THE ACTIVITY WAS SLOW - BRS
Capesize
The Capesize market in Atlantic stayed pretty firm last week with transatlantic rounds being fixed in the high twenties. Sentiment was les ...
Tuesday, 29 November 11
GOLDEN GATE BRIDGE OF INDONESIA COLLAPSED AT KUKAR, EAST KALIMANTAN
COALspot.com - A suspension bridge in Indonesia’s east Kalimantan province over the Mahakam river collapsed on Saturday, killing at least elev ...
Tuesday, 29 November 11
BUKIT ASAM SCOUTS RP3 TRILLION PROFIT - INSIDER STORIES
The state-controlled coal miner PT Bukit Asam Tbk (PTBA) expects to post a Rp3 trillion net income this year, reaching its target which is 50% above ...
Tuesday, 29 November 11
DRY BULK MARKET BEGINS WEEK ON HIGHER NOTE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Contrary to what had been the case during the past few weeks, this one began on a high note for the dry bulk market, with the Capesize sector pullin ...
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- Orica Mining Services - Indonesia
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- Therma Luzon, Inc, Philippines
- Riau Bara Harum - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Renaissance Capital - South Africa
- Kartika Selabumi Mining - Indonesia
- CIMB Investment Bank - Malaysia
- Heidelberg Cement - Germany
- Aditya Birla Group - India
- Planning Commission, India
- IEA Clean Coal Centre - UK
- Bank of Tokyo Mitsubishi UFJ Ltd
- PowerSource Philippines DevCo
- TeaM Sual Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Alfred C Toepfer International GmbH - Germany
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Vijayanagar Sugar Pvt Ltd - India
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Power Finance Corporation Ltd., India
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- McConnell Dowell - Australia
- Lanco Infratech Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Posco Energy - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Tamil Nadu electricity Board
- Sakthi Sugars Limited - India
- Ceylon Electricity Board - Sri Lanka
- Oldendorff Carriers - Singapore
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Eastern Energy - Thailand
- Electricity Generating Authority of Thailand
- Ambuja Cements Ltd - India
- Bhoruka Overseas - Indonesia
- Cement Manufacturers Association - India
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- Chamber of Mines of South Africa
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Salva Resources Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- MS Steel International - UAE
- Xindia Steels Limited - India
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Timah Investasi Mineral - Indoneisa
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Madhucon Powers Ltd - India
- GAC Shipping (India) Pvt Ltd
- Globalindo Alam Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- India Bulls Power Limited - India
- Ind-Barath Power Infra Limited - India
- Indian Energy Exchange, India
- Kaltim Prima Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- Star Paper Mills Limited - India
- Anglo American - United Kingdom
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Toyota Tsusho Corporation, Japan
- Tata Chemicals Ltd - India
- Borneo Indobara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Jindal Steel & Power Ltd - India
- SN Aboitiz Power Inc, Philippines
- Indonesian Coal Mining Association
- Directorate Of Revenue Intelligence - India
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Cigading International Bulk Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sarangani Energy Corporation, Philippines
- Bhushan Steel Limited - India
- Semirara Mining Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- GVK Power & Infra Limited - India
- Parliament of New Zealand
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Banpu Public Company Limited - Thailand
- SMC Global Power, Philippines
- ASAPP Information Group - India
- Electricity Authority, New Zealand
- Formosa Plastics Group - Taiwan
- Malabar Cements Ltd - India
- Port Waratah Coal Services - Australia
- Simpson Spence & Young - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- The University of Queensland
- GN Power Mariveles Coal Plant, Philippines
- Essar Steel Hazira Ltd - India
- Australian Commodity Traders Exchange
- Coastal Gujarat Power Limited - India
- Minerals Council of Australia
- Interocean Group of Companies - India
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- Australian Coal Association
- Rashtriya Ispat Nigam Limited - India
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Dalmia Cement Bharat India
- Central Electricity Authority - India
- Wilmar Investment Holdings
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Central Java Power - Indonesia
- Thiess Contractors Indonesia
- Vizag Seaport Private Limited - India
- Bangladesh Power Developement Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- White Energy Company Limited
- Samtan Co., Ltd - South Korea
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- Bukit Asam (Persero) Tbk - Indonesia
- Coalindo Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Agrawal Coal Company - India
- The State Trading Corporation of India Ltd
- Latin American Coal - Colombia
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- European Bulk Services B.V. - Netherlands
- Iligan Light & Power Inc, Philippines
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Deloitte Consulting - India
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- VISA Power Limited - India
- Mjunction Services Limited - India
- Price Waterhouse Coopers - Russia
- Global Coal Blending Company Limited - Australia
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- AsiaOL BioFuels Corp., Philippines
- Edison Trading Spa - Italy
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Marubeni Corporation - India
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Romanian Commodities Exchange
- Straits Asia Resources Limited - Singapore
- SMG Consultants - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Standard Chartered Bank - UAE
- Mercator Lines Limited - India
- Merrill Lynch Commodities Europe
- Mercuria Energy - Indonesia
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