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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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Monday, 29 March 21
MOODY'S: OUTLOOK FOR GLOBAL METALS AND MINING INDUSTRY TURNS POSITIVE ON HIGHER EBITDA IN PANDEMIC'S WAKE
- Demand for steel, iron ore and copper will rise, while aluminum, nickel and zinc will remain in surplus
- EBITDA is expected to ...
Thursday, 25 March 21
PROPOSED SWITCH FROM COAL TO LNG THREATENS RENEWABLE ENERGY DEVELOPMENT IN ASIA - IEEFA
Renewables offer an ever cheaper, financially sustainable and energy secure alternative, better able to support developing nations
A ...
Thursday, 25 March 21
MAJOR INVESTMENT ADVISORS BLACKROCK AND MEKETA PROVIDE A FIDUCIARY PATH THROUGH THE ENERGY TRANSITION - IEEFA
BlackRock and Meketa say divestment from fossil fuels improves, not weakens, investment returns
Two major financial management firms ...
Thursday, 25 March 21
EUROPE PASSES MILESTONE WITH HALF OF COAL PLANTS CLOSED OR SET TO RETIRE BY 2030 - EURACTIV
Half of Europe’s 324 coal-fueled power plants have either closed or announced a retirement date before 2030, it emerged on Monday (22 March) ...
Wednesday, 24 March 21
MARKET INSIGHT - INTERMODAL
Since the start of the pandemic, the shipping industry has efficiently responded to ensure the continuity of operations and hence the security of s ...
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- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Attock Cement Pakistan Limited
- TNB Fuel Sdn Bhd - Malaysia
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Kumho Petrochemical, South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Jaiprakash Power Ventures ltd
- Price Waterhouse Coopers - Russia
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- Sojitz Corporation - Japan
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Gujarat Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Australian Commodity Traders Exchange
- Chettinad Cement Corporation Ltd - India
- Sical Logistics Limited - India
- Semirara Mining Corp, Philippines
- Coastal Gujarat Power Limited - India
- Iligan Light & Power Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- Grasim Industreis Ltd - India
- Jindal Steel & Power Ltd - India
- Goldman Sachs - Singapore
- Intertek Mineral Services - Indonesia
- Oldendorff Carriers - Singapore
- Marubeni Corporation - India
- Sakthi Sugars Limited - India
- Indika Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Baramulti Group, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Parry Sugars Refinery, India
- Electricity Authority, New Zealand
- International Coal Ventures Pvt Ltd - India
- Interocean Group of Companies - India
- Salva Resources Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Mineral Development Corp Ltd - India
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- Larsen & Toubro Limited - India
- SN Aboitiz Power Inc, Philippines
- Agrawal Coal Company - India
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- European Bulk Services B.V. - Netherlands
- Wood Mackenzie - Singapore
- Sinarmas Energy and Mining - Indonesia
- Malabar Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- Heidelberg Cement - Germany
- Singapore Mercantile Exchange
- Latin American Coal - Colombia
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- Makarim & Taira - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kepco SPC Power Corporation, Philippines
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Ambuja Cements Ltd - India
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- TeaM Sual Corporation - Philippines
- PTC India Limited - India
- Binh Thuan Hamico - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Xindia Steels Limited - India
- Meralco Power Generation, Philippines
- Leighton Contractors Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- LBH Netherlands Bv - Netherlands
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Straits Asia Resources Limited - Singapore
- Eastern Coal Council - USA
- Bhatia International Limited - India
- Star Paper Mills Limited - India
- Globalindo Alam Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- Simpson Spence & Young - Indonesia
- MS Steel International - UAE
- Central Java Power - Indonesia
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Uttam Galva Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Riau Bara Harum - Indonesia
- Kideco Jaya Agung - Indonesia
- Aditya Birla Group - India
- Banpu Public Company Limited - Thailand
- Coalindo Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Economic Council, Georgia
- Planning Commission, India
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Antam Resourcindo - Indonesia
- Global Coal Blending Company Limited - Australia
- Mjunction Services Limited - India
- Petron Corporation, Philippines
- Bhushan Steel Limited - India
- Siam City Cement - Thailand
- The Treasury - Australian Government
- Energy Link Ltd, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Bangladesh Power Developement Board
- Siam City Cement PLC, Thailand
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- Timah Investasi Mineral - Indoneisa
- ICICI Bank Limited - India
- CNBM International Corporation - China
- New Zealand Coal & Carbon
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Formosa Plastics Group - Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercuria Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Savvy Resources Ltd - HongKong
- Mercator Lines Limited - India
- Tamil Nadu electricity Board
- Miang Besar Coal Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Vizag Seaport Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- Independent Power Producers Association of India
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Bhoruka Overseas - Indonesia
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- Minerals Council of Australia
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- Barasentosa Lestari - Indonesia
- Thai Mozambique Logistica
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Trasteel International SA, Italy
- Edison Trading Spa - Italy
- Sree Jayajothi Cements Limited - India
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- SMC Global Power, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- Gujarat Sidhee Cement - India
- Coal and Oil Company - UAE
- Ceylon Electricity Board - Sri Lanka
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Rashtriya Ispat Nigam Limited - India
- Deloitte Consulting - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Metalloyd Limited - United Kingdom
- Sindya Power Generating Company Private Ltd
- Ministry of Finance - Indonesia
- Lanco Infratech Ltd - India
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Orica Mining Services - Indonesia
- White Energy Company Limited
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Carbofer General Trading SA - India
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