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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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Friday, 25 November 11
DISPUTE BETWEEN GIANT MINING FIRMS ENDS IN LAHAT - THE JAKARTA POST
The Jakarta Post reported that, prolonged dispute taking place in the South Sumatra regency of Lahat and involving two giant mining companies PT Buk ...
Friday, 25 November 11
DRY BULK MARKET LOSING STEAM, FAST - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
It’s been a week of falls for the dry bulk market this one, leaving ship owners with a sour taste in their mouths, as evidence of a recovery i ...
Thursday, 24 November 11
INDONESIA/INDIA SPMX TC AROUND $ 7/8K AND AROUND $ 12/13.00 PMTS ON VOYAGE BASIS - FEARNLEYS
Handy
Last week ended on a positive note in the Atlantic however the activity levels are somewhat reduced. Owners are asking in excess of USD ...
Thursday, 24 November 11
DRY BULK MARKET KEEPS LOSING STEAM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market was lower once again on Wednesday, with the industry’s benchmark, the Baltic Dry Index (BDI) ending the session down by 1. ...
Tuesday, 22 November 11
NTPC TO BUY 2 MMT OF IMPORTED COAL FOR ITS FOUR PLANTS
COALspot.com - NTPC Limited, incorporated in 1975 as a public sector company wholly owned by Government of India, the largest thermal power generati ...
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- Pendopo Energi Batubara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Binh Thuan Hamico - Vietnam
- Jaiprakash Power Ventures ltd
- Gujarat Sidhee Cement - India
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Tamil Nadu electricity Board
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- MS Steel International - UAE
- PowerSource Philippines DevCo
- Parry Sugars Refinery, India
- Salva Resources Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- TeaM Sual Corporation - Philippines
- Siam City Cement - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Vizag Seaport Private Limited - India
- Wilmar Investment Holdings
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Sakthi Sugars Limited - India
- Commonwealth Bank - Australia
- Energy Link Ltd, New Zealand
- Formosa Plastics Group - Taiwan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Borneo Indobara - Indonesia
- Indian Oil Corporation Limited
- Indogreen Group - Indonesia
- Electricity Authority, New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Coastal Gujarat Power Limited - India
- Aditya Birla Group - India
- Antam Resourcindo - Indonesia
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- OPG Power Generation Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Power Finance Corporation Ltd., India
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- LBH Netherlands Bv - Netherlands
- Kideco Jaya Agung - Indonesia
- Karaikal Port Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Heidelberg Cement - Germany
- Carbofer General Trading SA - India
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- CIMB Investment Bank - Malaysia
- South Luzon Thermal Energy Corporation
- Ministry of Finance - Indonesia
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- New Zealand Coal & Carbon
- India Bulls Power Limited - India
- Posco Energy - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Neyveli Lignite Corporation Ltd, - India
- Chettinad Cement Corporation Ltd - India
- Xindia Steels Limited - India
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- GMR Energy Limited - India
- Edison Trading Spa - Italy
- Malabar Cements Ltd - India
- Deloitte Consulting - India
- Bukit Asam (Persero) Tbk - Indonesia
- Attock Cement Pakistan Limited
- Coalindo Energy - Indonesia
- Uttam Galva Steels Limited - India
- Grasim Industreis Ltd - India
- Coal and Oil Company - UAE
- Krishnapatnam Port Company Ltd. - India
- TNB Fuel Sdn Bhd - Malaysia
- VISA Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- Merrill Lynch Commodities Europe
- Africa Commodities Group - South Africa
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- McConnell Dowell - Australia
- Bangladesh Power Developement Board
- IEA Clean Coal Centre - UK
- Ceylon Electricity Board - Sri Lanka
- Barasentosa Lestari - Indonesia
- Trasteel International SA, Italy
- ICICI Bank Limited - India
- Larsen & Toubro Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- Bayan Resources Tbk. - Indonesia
- Bhoruka Overseas - Indonesia
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- The University of Queensland
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Singapore Mercantile Exchange
- GVK Power & Infra Limited - India
- Savvy Resources Ltd - HongKong
- Standard Chartered Bank - UAE
- Eastern Energy - Thailand
- The Treasury - Australian Government
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Agrawal Coal Company - India
- Mercator Lines Limited - India
- Maheswari Brothers Coal Limited - India
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- Orica Mining Services - Indonesia
- Australian Coal Association
- Oldendorff Carriers - Singapore
- Mercuria Energy - Indonesia
- Madhucon Powers Ltd - India
- PTC India Limited - India
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Bhatia International Limited - India
- AsiaOL BioFuels Corp., Philippines
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- Energy Development Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Mjunction Services Limited - India
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Bulk Trading Sa - Switzerland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Australian Commodity Traders Exchange
- CNBM International Corporation - China
- Planning Commission, India
- Medco Energi Mining Internasional
- Ministry of Transport, Egypt
- Maharashtra Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Samtan Co., Ltd - South Korea
- ASAPP Information Group - India
- Anglo American - United Kingdom
- Sical Logistics Limited - India
- Simpson Spence & Young - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Metalloyd Limited - United Kingdom
- Port Waratah Coal Services - Australia
- Essar Steel Hazira Ltd - India
- Parliament of New Zealand
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Videocon Industries ltd - India
- Thai Mozambique Logistica
- Gujarat Electricity Regulatory Commission - India
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- Interocean Group of Companies - India
- Latin American Coal - Colombia
- IHS Mccloskey Coal Group - USA
- Tata Chemicals Ltd - India
- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- Banpu Public Company Limited - Thailand
- Kapuas Tunggal Persada - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- International Coal Ventures Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Meralco Power Generation, Philippines
- Orica Australia Pty. Ltd.
- Global Coal Blending Company Limited - Australia
- Bharathi Cement Corporation - India
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