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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, 07 April 21
KOMIPO ISSUED A TENDER FOR TOTAL 1,560,000 METRIC TONS OF BITUMINOUS COAL
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a tender for total 1,560,000 Metric Tons of Bituminous coal for i ...
Wednesday, 07 April 21
MARKET INSIGHT - INTERMODAL
Following the end of the catholic easter, during which the majority of shipping market participants were on holidays, it is interesting to note a f ...
Wednesday, 07 April 21
COAL USED TO GENERATE ELECTRIC POWER IN U.S. WILL INCREASE BY 13 PERCENT TO 495 MMST IN 2021 - EIA
EIA expects U.S. coal production to total 585 MMst in 2021, 46 MMst (9%) more than in 2020. In 2022, EIA expects coal production to grow by an addi ...
Wednesday, 31 March 21
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.12 PCT - XINHUA
China Taiyuan coal transaction price index stood at 139.03 points Monday, up 0.12 percent week on week.
The index, released by China ...
Wednesday, 31 March 21
MARKET INSIGHT - INTERMODAL
Over the past week, the biggest story has been the blockage of the Suez Canal, as a result of the grounding of the container ship Ever Given. At th ...
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- Ind-Barath Power Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- Indo Tambangraya Megah - Indonesia
- Sical Logistics Limited - India
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Kohat Cement Company Ltd. - Pakistan
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Power Finance Corporation Ltd., India
- Siam City Cement - Thailand
- Bhushan Steel Limited - India
- Pendopo Energi Batubara - Indonesia
- Barasentosa Lestari - Indonesia
- Sojitz Corporation - Japan
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bhoruka Overseas - Indonesia
- Heidelberg Cement - Germany
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Krishnapatnam Port Company Ltd. - India
- ASAPP Information Group - India
- Riau Bara Harum - Indonesia
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Jaiprakash Power Ventures ltd
- New Zealand Coal & Carbon
- Central Java Power - Indonesia
- Sindya Power Generating Company Private Ltd
- Bhatia International Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- Lanco Infratech Ltd - India
- Ministry of Transport, Egypt
- MS Steel International - UAE
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Renaissance Capital - South Africa
- Sree Jayajothi Cements Limited - India
- Semirara Mining and Power Corporation, Philippines
- PTC India Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Link Ltd, New Zealand
- Videocon Industries ltd - India
- Port Waratah Coal Services - Australia
- Bulk Trading Sa - Switzerland
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kaltim Prima Coal - Indonesia
- Central Electricity Authority - India
- PNOC Exploration Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- Indian Oil Corporation Limited
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- Salva Resources Pvt Ltd - India
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Carbofer General Trading SA - India
- Aboitiz Power Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Therma Luzon, Inc, Philippines
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Ceylon Electricity Board - Sri Lanka
- ICICI Bank Limited - India
- Economic Council, Georgia
- Coal and Oil Company - UAE
- Alfred C Toepfer International GmbH - Germany
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Edison Trading Spa - Italy
- Indika Energy - Indonesia
- CNBM International Corporation - China
- Indogreen Group - Indonesia
- Globalindo Alam Lestari - Indonesia
- VISA Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Global Green Power PLC Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Planning Commission, India
- Leighton Contractors Pty Ltd - Australia
- Australian Coal Association
- Maharashtra Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Kideco Jaya Agung - Indonesia
- Coalindo Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- Antam Resourcindo - Indonesia
- Vizag Seaport Private Limited - India
- Georgia Ports Authority, United States
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- TeaM Sual Corporation - Philippines
- India Bulls Power Limited - India
- Wilmar Investment Holdings
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
- Global Coal Blending Company Limited - Australia
- Gujarat Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Vijayanagar Sugar Pvt Ltd - India
- Petron Corporation, Philippines
- Star Paper Mills Limited - India
- GVK Power & Infra Limited - India
- Electricity Authority, New Zealand
- Mercator Lines Limited - India
- Bangladesh Power Developement Board
- Merrill Lynch Commodities Europe
- Borneo Indobara - Indonesia
- Independent Power Producers Association of India
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Banpu Public Company Limited - Thailand
- London Commodity Brokers - England
- The State Trading Corporation of India Ltd
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Indian Energy Exchange, India
- Jindal Steel & Power Ltd - India
- Mercuria Energy - Indonesia
- Chamber of Mines of South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Oldendorff Carriers - Singapore
- Aditya Birla Group - India
- Cement Manufacturers Association - India
- Thiess Contractors Indonesia
- CIMB Investment Bank - Malaysia
- Ambuja Cements Ltd - India
- Posco Energy - South Korea
- Ministry of Mines - Canada
- Romanian Commodities Exchange
- Parry Sugars Refinery, India
- Marubeni Corporation - India
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- South Luzon Thermal Energy Corporation
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Indonesian Coal Mining Association
- Ministry of Finance - Indonesia
- Larsen & Toubro Limited - India
- Gujarat Sidhee Cement - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- White Energy Company Limited
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Australian Commodity Traders Exchange
- Toyota Tsusho Corporation, Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Bharathi Cement Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Karaikal Port Pvt Ltd - India
- Grasim Industreis Ltd - India
- Altura Mining Limited, Indonesia
- Directorate Of Revenue Intelligence - India
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Standard Chartered Bank - UAE
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- Simpson Spence & Young - Indonesia
- Attock Cement Pakistan Limited
- Sarangani Energy Corporation, Philippines
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