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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, 18 November 11
MMTC SEEKS 1.365 MMT OF IMPORTED COAL
COALspot.com - India's MMTC, the largest trading company of India and a major trading company of Asia, has issued a term supply tender for 1.365Mt ...
Friday, 18 November 11
KPC, ARUTMIN OUTPUT REACHED 47.1 MIO TONS - INSIDER STORIES
PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia, reported 47.1 million tons of coal production in 9M 2011, according to Indiser Stories.
Insi ...
Friday, 18 November 11
THE ATLANTIC SUPRAMAX MARKET EXPERIENCED A STEADY AND FIRM TENDENCY
Handy
The Atlantic Supramax market experienced a steady and firm tendency this week. Especially the North Atlantic and Mediterranean position ...
Friday, 18 November 11
BERAU COAL 9M PROFIT SOARS 194.46% - INSIDER STORIES
Insider Stories reported that, PT Berau Coal Energy Tbk (BRAU), which is 84.7% owned by Bumi Plc, reported a 194.46% jump in net profit by end of Se ...
Thursday, 17 November 11
DRY BULK MARKET INCHES FORWARD AND INTO HIGHER GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market edged higher yesterday, on the back of stronger demand for Capesize vessels and general improvement of sentiment on most of the ...
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- The University of Queensland
- Bhatia International Limited - India
- Global Coal Blending Company Limited - Australia
- IHS Mccloskey Coal Group - USA
- Bukit Makmur.PT - Indonesia
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Kumho Petrochemical, South Korea
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- The Treasury - Australian Government
- Uttam Galva Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Energy Development Corp, Philippines
- Interocean Group of Companies - India
- White Energy Company Limited
- Renaissance Capital - South Africa
- Sakthi Sugars Limited - India
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Barasentosa Lestari - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- India Bulls Power Limited - India
- Orica Mining Services - Indonesia
- Coalindo Energy - Indonesia
- Cement Manufacturers Association - India
- Bukit Baiduri Energy - Indonesia
- Central Electricity Authority - India
- SMG Consultants - Indonesia
- Sarangani Energy Corporation, Philippines
- Videocon Industries ltd - India
- Savvy Resources Ltd - HongKong
- GN Power Mariveles Coal Plant, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Globalindo Alam Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Leighton Contractors Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Minerals Council of Australia
- Madhucon Powers Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Holcim Trading Pte Ltd - Singapore
- Rashtriya Ispat Nigam Limited - India
- Bangladesh Power Developement Board
- Kalimantan Lumbung Energi - Indonesia
- TeaM Sual Corporation - Philippines
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Merrill Lynch Commodities Europe
- Carbofer General Trading SA - India
- OPG Power Generation Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Salva Resources Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- VISA Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Green Power PLC Corporation, Philippines
- Power Finance Corporation Ltd., India
- Edison Trading Spa - Italy
- Heidelberg Cement - Germany
- MS Steel International - UAE
- Sical Logistics Limited - India
- Singapore Mercantile Exchange
- Kaltim Prima Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- Wilmar Investment Holdings
- Bulk Trading Sa - Switzerland
- Tamil Nadu electricity Board
- Sree Jayajothi Cements Limited - India
- London Commodity Brokers - England
- GVK Power & Infra Limited - India
- Borneo Indobara - Indonesia
- PNOC Exploration Corporation - Philippines
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Deloitte Consulting - India
- ICICI Bank Limited - India
- Romanian Commodities Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- Commonwealth Bank - Australia
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Parry Sugars Refinery, India
- Neyveli Lignite Corporation Ltd, - India
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- Bhoruka Overseas - Indonesia
- Attock Cement Pakistan Limited
- Thai Mozambique Logistica
- Ministry of Finance - Indonesia
- Ind-Barath Power Infra Limited - India
- Price Waterhouse Coopers - Russia
- Bukit Asam (Persero) Tbk - Indonesia
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- Cigading International Bulk Terminal - Indonesia
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Chamber of Mines of South Africa
- LBH Netherlands Bv - Netherlands
- Kideco Jaya Agung - Indonesia
- Coastal Gujarat Power Limited - India
- Malabar Cements Ltd - India
- Latin American Coal - Colombia
- Indika Energy - Indonesia
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Star Paper Mills Limited - India
- Banpu Public Company Limited - Thailand
- Ministry of Mines - Canada
- Bahari Cakrawala Sebuku - Indonesia
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- San Jose City I Power Corp, Philippines
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Riau Bara Harum - Indonesia
- Karaikal Port Pvt Ltd - India
- Mercuria Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Transport, Egypt
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- GMR Energy Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Rio Tinto Coal - Australia
- Wood Mackenzie - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Indian Energy Exchange, India
- Port Waratah Coal Services - Australia
- Planning Commission, India
- Alfred C Toepfer International GmbH - Germany
- Meralco Power Generation, Philippines
- South Luzon Thermal Energy Corporation
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- Makarim & Taira - Indonesia
- International Coal Ventures Pvt Ltd - India
- Larsen & Toubro Limited - India
- Medco Energi Mining Internasional
- Australian Commodity Traders Exchange
- Lanco Infratech Ltd - India
- Aditya Birla Group - India
- Sindya Power Generating Company Private Ltd
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Standard Chartered Bank - UAE
- Manunggal Multi Energi - Indonesia
- Grasim Industreis Ltd - India
- Electricity Authority, New Zealand
- ASAPP Information Group - India
- Sojitz Corporation - Japan
- Baramulti Group, Indonesia
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- Georgia Ports Authority, United States
- Trasteel International SA, Italy
- Agrawal Coal Company - India
- Bayan Resources Tbk. - Indonesia
- Altura Mining Limited, Indonesia
- Toyota Tsusho Corporation, Japan
- Gujarat Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Therma Luzon, Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Metalloyd Limited - United Kingdom
- SN Aboitiz Power Inc, Philippines
- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Economic Council, Georgia
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Dalmia Cement Bharat India
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