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Thursday, 25 March 21
'OMNIBUS LAW' REGULATION ON INDONESIA’S ENERGY AND MINING SECTORS TO BOOST COAL PROCESSING BUT ALSO RAISES QUESTIONS - ABNR
 February 2021 saw the issuance of a raft of new government regulations to give effect to the reformist Job Creation Law (colloquially known as the Omnibus Law), which entered into force on 2 November 2020. In this ABNR legal update, we discuss Government Regulation No. 25 of 2021 on the Energy and Mineral Sectors.
The government has issued a new regulation to give effect to the provisions of the Omnibus Law[1] relating to the mineral, coal, geothermal and power sectors. While the regulation makes some important changes, the overall purpose appears to be primarily to codify existing secondary legislation governing the relevant sectors.
The new instrument, Government Regulation No. 25 of 2021 on the Energy and Mineral Sectors (the “Regulation”),[2] was issued on 2 February 2021.
Due to the wide-ranging scope of the Regulation, we confine our analysis to its key provisions in this ABNR Legal Update.
A. Mining sector
Under the Omnibus Law, the holder of a Production-Operations Mining Business License (“IUP”) or Special Production-Operations Mining Business License (“IUPK”) for coal may be entitled to a complete exemption from the payment of royalties if it processes its coal production domestically, compared to an obligation to pay royalties of 3% to 7% (depending of calorific value and mining method) if it does not process its production domestically. This incentive should help boost investment in the coal processing industry (e.g., coal slurry, coal gasification and coal liquefaction), which is currently less developed than the mineral processing and refining industry.
The Regulation provides that the financial incentive will be given after approval by the Minister of Finance. Although not expressly stated, we believe the Minister of Finance will require a recommendation from the Minister of Energy and Mineral Resources (“MEMR”) before giving such approval as the Regulation stipulates the former should take into account considerations relating to energy sustainability and the fulfillment of industrial needs for raw materials, both of which come within the purview of the MEMR.
The financial incentives are not available for all coal that is produced by a mining license holder but only for certain types of coal that are processed domestically.
B. Geothermal Sector
The Regulation makes provision for the imposition of administrative sanctions and penalties on geothermal businesses that: (i) indirectly use geothermal energy without the required license or in a way that contravenes their license; (ii) fail to commence activities in their allocated work area within the stipulated timeframe; or (iii) fail to comply with the obligations set out in their license or the laws and regulations in general. By contrast, the Geothermal Law only imposes criminal sanctions for non-compliance with licenses.
It is prohibited for a holder of a geothermal license to assign it to a third party. Any violation of this prohibition is subject to administrative sanctions. Further, it is prohibited, once again subject to sanctions, for the holder of a geothermal license to sell its shares on the Indonesia Stock Exchange (“IDX”) without MEMR approval prior to the exploration stage.
While the text of the Regulation in this regard appears to only apply to a geothermal company that is itself listed on the IDX, and not to the holding company of a geothermal company listed on the IDX, it is as yet unclear whether this particular provision will be construed narrowly so as to exclude a holding company or widely so as to include it. The Regulation also fails to explain how the prohibition will be implemented and, more specifically, whether the IDX will be required to monitor transfers of shares of IPB holders so as to ensure that the prohibition is not violated.
C. Power Sector
The Omnibus Law has relaxed the rules in a number of key areas of the power sector, including the rules on operations areas, electricity-sector support services and joint utilization of electricity networks. However, it also imposes new obligations on electricity consumers. These changes have now been further fleshed out in the Regulation.
Under the Regulation, the term “public interest electricity business” covers (i) electricity generation; (ii) electricity transmission; (iii) electricity distribution; and (iv) sale of electricity. These various activities can be integrated and conducted by a single undertaking. For that purpose, the holder of Public Interest Electricity Business License (Izin Usaha Penyedian Tenaga Listrik Untuk Kepentingan Umum) must apply for the allocation of an Operations Area, particularly for the distribution and sale of electricity. The Regulation further stipulates that MEMR must consider the following aspects in determining the allocation of Operations Areas:
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The existing holder of an Operations Area is no longer capable of supplying electricity;
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The existing holder of Operations Area is no longer capable of maintaining the quality and reliability of its electricity supply;
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The existing holder of an Operations Area surrenders a part or all of its Operations Area to MEMR;
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The Operations Area applied for is a remote area that has not been assigned to another Operations Area holder; and/or
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The Operations Area applied for is a designated area for the development of integrated energy sources in accordance with its power needs.
While in practice we expect that PT PLN (Persero), the state power company and largest player in the Indonesian power sector, will continue to dominate the development of new or existing Operations Areas, the considerations listed above could still open opportunities for private investors to proactively seek out prospective Operations Areas for development.
The Regulation also establishes the following licensing and reporting requirements for own-interest power producers (i.e., operators of captive power plants):
> 500 kW – requires an Own-Interest Electricity Business License (Izin Usaha Penyediaan Tenaga Listrik untuk Kepentingan Sendiri) from MEMR or relevant provincial governor, plus a certificate of operational worthiness.
< 500kW - must submit a prior written report to the Minister or relevant governor and satisfy technical specifications, as evidenced by a certificate of operational worthiness and other technical documents to be registered with MEMR.
It interesting to note that the Regulation also imposes various new obligations on electricity consumers, Including obligations to ensure the security of their electricity installations, to use electricity in accordance with its purposes, to pay their electricity bills and to comply with technical requirements in the power sector. A consumer may be sued for any losses suffered by the holder of a Public Interest Electricity Business License if they fail to perform their obligations. This provision may also be regarded as setting out the minimum provisions that should be incorporated in an electricity purchase agreement between a power provider and its customers, including industrial customers.
As regards the electricity support services sector (“Support Services”), a foreign investor that wishes to carry on business in this field has the option of establishing a representative office / Kantor Perwakilan Asing (“KPA”). The Support Services that can be performed by a KPA are restricted to a list of clearly defined activities, including consultation on electricity installations, construction and installation of electricity infrastructure, and the maintenance of power installations. The projects developed by a KPA must also come within the “high cost” category, with a minimum contract value of Rp 100 billion for construction and installation activities.
It should be noted in this regard that the Regulation is somewhat unclear. While it goes into noticeable detail on the rules governing KPA, it is silent as to the role to be played by foreign invested companies (PT PMA) in the electricity support services sector.
As mandated by the Omnibus Law, the Regulation further provides for the joint utilization of power transmission networks by telecommunication, multimedia and IT companies. Such joint utilization must be based on the permission of the network owner, which may only be given if the joint utilization does not have the potential to disrupt electricity supplies. The network owner must submit a report to MEMR on its consent to joint utilization, enclosing certain supporting documents, including the joint utilization agreement and details of the telecommunications equipment to be installed in the power transmission network.
ABNR Commentary
Despite the lack of clarity and question marks regarding some provisions, as mentioned above, the Regulation fills in some obvious gaps in the Omnibus Law relating to the mineral, coal and power sectors. However, there remain a number of outstanding issues that require attention. In this regard, the Regulation incorporates an enabling provision that allows MEMR to take whatever action is required to resolve any issues that are not, or are inadequately, addressed in the Regulation. This is a new type of catch-all “fix-it-up” provision in Indonesian law that is also used in a number of other sectoral regulations issued under the Omnibus Law. It will be interesting to see the extent to which the MEMR, as well as other ministries, avail of this power to make legislative and regulatory changes going ahead.
By partner Mr. Freddy Karyadi and senior associate Mr. Mahatma Hadhi
Source: ABNR
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Wednesday, 14 April 21
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 1.10 PCT - XINHUA
China Taiyuan coal transaction price index stood at 138.05 points Monday, down 1.10 percent week on week.
The index, released by Chi ...
Wednesday, 14 April 21
MARKET INSIGHT - INTERMODAL
After a series of months where the dry bulk sector was attracting most of the buying interest, tankers SnP activity spiked in the previous weeks. O ...
Tuesday, 13 April 21
INDONESIAN COAL PRICE REFERENCE IN APRIL UP AGAIN ON FIRM DEMAND
COALspot.com: The Indonesia coal price reference for April 2021 settles at US$ 86.68 per ton FOB vessel.
The Indonesia coal pr ...
Monday, 12 April 21
CHINA'S ECONOMIC RECOVERY PUSHES COAL MINES TO INCREASE YIELD - GLOBAL TIMES
China’s fast economic rebound from coronavirus has driven up electricity demand, leading to higher consumption of coal which is seeing rising ...
Monday, 12 April 21
GLOBAL COAL PRODUCTION EXPECTED TO RISE BY 3.5% IN 2021, SAYS GLOBALDATA
Global coal output is estimated to have declined by 2% in 2020 due to COVID-19-related lockdowns and restrictions, with significant reductions obse ...
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- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Eastern Energy - Thailand
- International Coal Ventures Pvt Ltd - India
- Electricity Authority, New Zealand
- European Bulk Services B.V. - Netherlands
- McConnell Dowell - Australia
- Tata Chemicals Ltd - India
- PowerSource Philippines DevCo
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- IHS Mccloskey Coal Group - USA
- Siam City Cement PLC, Thailand
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Borneo Indobara - Indonesia
- Directorate Of Revenue Intelligence - India
- Eastern Coal Council - USA
- Lanco Infratech Ltd - India
- Formosa Plastics Group - Taiwan
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- TeaM Sual Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Ministry of Finance - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Central Electricity Authority - India
- Maharashtra Electricity Regulatory Commission - India
- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
- SMC Global Power, Philippines
- Meralco Power Generation, Philippines
- IEA Clean Coal Centre - UK
- Kalimantan Lumbung Energi - Indonesia
- Coal and Oil Company - UAE
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- ICICI Bank Limited - India
- Sinarmas Energy and Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Chamber of Mines of South Africa
- Larsen & Toubro Limited - India
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- Malabar Cements Ltd - India
- Indogreen Group - Indonesia
- Bangladesh Power Developement Board
- Meenaskhi Energy Private Limited - India
- Madhucon Powers Ltd - India
- Mercuria Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Thiess Contractors Indonesia
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Global Coal Blending Company Limited - Australia
- Port Waratah Coal Services - Australia
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bayan Resources Tbk. - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- Xindia Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Economic Council, Georgia
- Power Finance Corporation Ltd., India
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Kapuas Tunggal Persada - Indonesia
- Wood Mackenzie - Singapore
- Coastal Gujarat Power Limited - India
- Bulk Trading Sa - Switzerland
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- The University of Queensland
- Bharathi Cement Corporation - India
- Indo Tambangraya Megah - Indonesia
- VISA Power Limited - India
- Planning Commission, India
- Orica Mining Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Ministry of Mines - Canada
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Intertek Mineral Services - Indonesia
- Commonwealth Bank - Australia
- Sical Logistics Limited - India
- Ministry of Transport, Egypt
- Bank of Tokyo Mitsubishi UFJ Ltd
- GAC Shipping (India) Pvt Ltd
- SN Aboitiz Power Inc, Philippines
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Price Waterhouse Coopers - Russia
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- Binh Thuan Hamico - Vietnam
- Vedanta Resources Plc - India
- Global Green Power PLC Corporation, Philippines
- Australian Commodity Traders Exchange
- PetroVietnam Power Coal Import and Supply Company
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- Mercator Lines Limited - India
- Cement Manufacturers Association - India
- Interocean Group of Companies - India
- London Commodity Brokers - England
- Mintek Dendrill Indonesia
- Tamil Nadu electricity Board
- Merrill Lynch Commodities Europe
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Australian Coal Association
- Pendopo Energi Batubara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Baramulti Group, Indonesia
- Maheswari Brothers Coal Limited - India
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Indian Oil Corporation Limited
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Indonesian Coal Mining Association
- Marubeni Corporation - India
- Carbofer General Trading SA - India
- Coalindo Energy - Indonesia
- SMG Consultants - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Aboitiz Power Corporation - Philippines
- Sarangani Energy Corporation, Philippines
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- CNBM International Corporation - China
- Electricity Generating Authority of Thailand
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Bhatia International Limited - India
- Deloitte Consulting - India
- Kumho Petrochemical, South Korea
- Cigading International Bulk Terminal - Indonesia
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- Minerals Council of Australia
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Thai Mozambique Logistica
- Videocon Industries ltd - India
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PTC India Limited - India
- Timah Investasi Mineral - Indoneisa
- Edison Trading Spa - Italy
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- LBH Netherlands Bv - Netherlands
- AsiaOL BioFuels Corp., Philippines
- GMR Energy Limited - India
- Metalloyd Limited - United Kingdom
- Altura Mining Limited, Indonesia
- Anglo American - United Kingdom
- Dalmia Cement Bharat India
- Manunggal Multi Energi - Indonesia
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement - Thailand
- Samtan Co., Ltd - South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Rio Tinto Coal - Australia
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
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