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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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Saturday, 12 November 11
DRY BULK MARKET REGAINS SOME OF THE LOST GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market managed to edge forward yesterday, putting an end and halting the losses accumulated over the course of the past weeks, which ha ...
Friday, 11 November 11
PETROCOM ENERGY PLANS $40M TO BUILD COAL PLANT IN CILEGON - JP
The Jakarta Post reported that, Hong Kong-based Petrocom Energy Ltd has unveiled plans to invest up to US$40 million on a proposed coal-blending fac ...
Friday, 11 November 11
GOVT WAITS LEGAL DECISION ON BUKIT ASAM, ADARO DISPUTE - JP
The Jakarta Post reported that, The government says that it will not interfere in the settlement process of the dispute between state coal miner PT ...
Thursday, 10 November 11
INDONESIAN REFERENCE COAL PRICE FELL AGAIN
COALspot.com - Ministry of Energy and Mineral Resources of Indonesia has set the November 2011 Indonesian Coal Reference Price for thermal coal at U ...
Tuesday, 08 November 11
COAL MINER ABM INVESTAMA PLANS $290M PUBLIC OFFERING - JG
The Jakarta Globe reported that, ABM Investama, an Indonesian coal miner controlled by the Hamami family, plans to raise as much as Rp 2.6 trillion ...
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- Energy Link Ltd, New Zealand
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- Cement Manufacturers Association - India
- Directorate Of Revenue Intelligence - India
- New Zealand Coal & Carbon
- Heidelberg Cement - Germany
- Mercator Lines Limited - India
- Antam Resourcindo - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Petron Corporation, Philippines
- Parry Sugars Refinery, India
- Jorong Barutama Greston.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- LBH Netherlands Bv - Netherlands
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Romanian Commodities Exchange
- Kohat Cement Company Ltd. - Pakistan
- Vizag Seaport Private Limited - India
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Riau Bara Harum - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Central Java Power - Indonesia
- Sojitz Corporation - Japan
- Altura Mining Limited, Indonesia
- MS Steel International - UAE
- Ambuja Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Power Finance Corporation Ltd., India
- Kalimantan Lumbung Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Interocean Group of Companies - India
- Australian Coal Association
- Bhushan Steel Limited - India
- Therma Luzon, Inc, Philippines
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- SMC Global Power, Philippines
- Georgia Ports Authority, United States
- Karbindo Abesyapradhi - Indoneisa
- Africa Commodities Group - South Africa
- Bangladesh Power Developement Board
- Miang Besar Coal Terminal - Indonesia
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- Timah Investasi Mineral - Indoneisa
- Grasim Industreis Ltd - India
- Bukit Makmur.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- White Energy Company Limited
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Independent Power Producers Association of India
- SN Aboitiz Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- Ministry of Transport, Egypt
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Merrill Lynch Commodities Europe
- Meralco Power Generation, Philippines
- Standard Chartered Bank - UAE
- Indika Energy - Indonesia
- Madhucon Powers Ltd - India
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- Larsen & Toubro Limited - India
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- Tamil Nadu electricity Board
- Goldman Sachs - Singapore
- Siam City Cement PLC, Thailand
- PNOC Exploration Corporation - Philippines
- Tata Chemicals Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Directorate General of MIneral and Coal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Latin American Coal - Colombia
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Straits Asia Resources Limited - Singapore
- Ceylon Electricity Board - Sri Lanka
- Vijayanagar Sugar Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Star Paper Mills Limited - India
- Metalloyd Limited - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Price Waterhouse Coopers - Russia
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Chamber of Mines of South Africa
- Global Business Power Corporation, Philippines
- Mjunction Services Limited - India
- Salva Resources Pvt Ltd - India
- Dalmia Cement Bharat India
- Manunggal Multi Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Sindya Power Generating Company Private Ltd
- ICICI Bank Limited - India
- Sical Logistics Limited - India
- Gujarat Electricity Regulatory Commission - India
- TNB Fuel Sdn Bhd - Malaysia
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- Indonesian Coal Mining Association
- CNBM International Corporation - China
- Singapore Mercantile Exchange
- The Treasury - Australian Government
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Ind-Barath Power Infra Limited - India
- Baramulti Group, Indonesia
- Wilmar Investment Holdings
- Carbofer General Trading SA - India
- Makarim & Taira - Indonesia
- Gujarat Sidhee Cement - India
- GVK Power & Infra Limited - India
- Banpu Public Company Limited - Thailand
- Commonwealth Bank - Australia
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Semirara Mining and Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Wood Mackenzie - Singapore
- Samtan Co., Ltd - South Korea
- Medco Energi Mining Internasional
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- Port Waratah Coal Services - Australia
- The State Trading Corporation of India Ltd
- Marubeni Corporation - India
- Malabar Cements Ltd - India
- Rio Tinto Coal - Australia
- Orica Mining Services - Indonesia
- Australian Commodity Traders Exchange
- Bhatia International Limited - India
- IEA Clean Coal Centre - UK
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Kumho Petrochemical, South Korea
- Jindal Steel & Power Ltd - India
- Planning Commission, India
- The University of Queensland
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Electricity Generating Authority of Thailand
- Attock Cement Pakistan Limited
- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
- Edison Trading Spa - Italy
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- PowerSource Philippines DevCo
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Billiton Holdings Pty Ltd - Australia
- India Bulls Power Limited - India
- McConnell Dowell - Australia
- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- Kobexindo Tractors - Indoneisa
- Eastern Energy - Thailand
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
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