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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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Saturday, 27 February 21
FITCH RATINGS REVISES GLOBAL METALS AND MINING PRICE ASSUMPTIONS
Fitch Ratings has revised some of its metals and mining price assumptions as prices for many commodities will benefit in the short term from return ...
Saturday, 27 February 21
MITSUBISHI PULLS OUT OF VINH TAN 3 COAL PROJECT IN VIETNAM - NIKKEI ASIA
Japanese trading house Mitsubishi Corp. decided Thursday to withdraw from the Vinh Tan 3 coal-fired power plant project in Vietnam amid growing int ...
Thursday, 25 February 21
ARE WE ON THE CUSP OF ANOTHER MINING SUPER-CYCLE? - WOOD MACKENZIE
As the first wave of the coronavirus pandemic began to bite, many observers confidently predicted that the end was nigh for global economic activit ...
Thursday, 25 February 21
2020 PROVED TO BE A TRULY TERRIBLE YEAR FOR SEABORNE COAL TRADE - BANCHERO COSTA
Total loadings in the 12 months of 2020 were down -12.7% year-on-year to 1,130 million tonnes, according to vessels tracking data from Refinitiv, s ...
Wednesday, 24 February 21
MARKET INSIGHT - INTERMODAL
With yields of up to 563%, the shares of Greek shipping companies listed on Wall Street are recorded. The Coronavirus pandemic has not significantl ...
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- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- Aboitiz Power Corporation - Philippines
- Independent Power Producers Association of India
- Merrill Lynch Commodities Europe
- Lanco Infratech Ltd - India
- Medco Energi Mining Internasional
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rio Tinto Coal - Australia
- IHS Mccloskey Coal Group - USA
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- Coal and Oil Company - UAE
- Anglo American - United Kingdom
- Singapore Mercantile Exchange
- Planning Commission, India
- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Electricity Authority, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ambuja Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- European Bulk Services B.V. - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Australian Coal Association
- Jaiprakash Power Ventures ltd
- Mercuria Energy - Indonesia
- Bhatia International Limited - India
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- Indian Energy Exchange, India
- Binh Thuan Hamico - Vietnam
- Kartika Selabumi Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- ICICI Bank Limited - India
- Kaltim Prima Coal - Indonesia
- Price Waterhouse Coopers - Russia
- Tamil Nadu electricity Board
- Deloitte Consulting - India
- Kobexindo Tractors - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Petron Corporation, Philippines
- Chamber of Mines of South Africa
- Leighton Contractors Pty Ltd - Australia
- Carbofer General Trading SA - India
- Sical Logistics Limited - India
- Ceylon Electricity Board - Sri Lanka
- Goldman Sachs - Singapore
- Indian Oil Corporation Limited
- Aditya Birla Group - India
- Simpson Spence & Young - Indonesia
- London Commodity Brokers - England
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Baramulti Group, Indonesia
- Bulk Trading Sa - Switzerland
- Romanian Commodities Exchange
- Thiess Contractors Indonesia
- Straits Asia Resources Limited - Singapore
- Bhushan Steel Limited - India
- Metalloyd Limited - United Kingdom
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- South Luzon Thermal Energy Corporation
- Directorate Of Revenue Intelligence - India
- Gujarat Mineral Development Corp Ltd - India
- Agrawal Coal Company - India
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Barasentosa Lestari - Indonesia
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Ind-Barath Power Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Therma Luzon, Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Iligan Light & Power Inc, Philippines
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- ASAPP Information Group - India
- Thai Mozambique Logistica
- Makarim & Taira - Indonesia
- Eastern Coal Council - USA
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tata Chemicals Ltd - India
- IEA Clean Coal Centre - UK
- Globalindo Alam Lestari - Indonesia
- Ministry of Transport, Egypt
- Wilmar Investment Holdings
- Power Finance Corporation Ltd., India
- The State Trading Corporation of India Ltd
- Parliament of New Zealand
- Samtan Co., Ltd - South Korea
- White Energy Company Limited
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- PNOC Exploration Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Kohat Cement Company Ltd. - Pakistan
- Videocon Industries ltd - India
- Bhoruka Overseas - Indonesia
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Vizag Seaport Private Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Savvy Resources Ltd - HongKong
- Karbindo Abesyapradhi - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Karaikal Port Pvt Ltd - India
- Coalindo Energy - Indonesia
- Trasteel International SA, Italy
- Mercator Lines Limited - India
- Eastern Energy - Thailand
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Salva Resources Pvt Ltd - India
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- SMG Consultants - Indonesia
- Meralco Power Generation, Philippines
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Orica Australia Pty. Ltd.
- CNBM International Corporation - China
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Orica Mining Services - Indonesia
- Electricity Generating Authority of Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement - Thailand
- Jorong Barutama Greston.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Wood Mackenzie - Singapore
- Star Paper Mills Limited - India
- Gujarat Sidhee Cement - India
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Kalimantan Lumbung Energi - Indonesia
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Sindya Power Generating Company Private Ltd
- Port Waratah Coal Services - Australia
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- Global Green Power PLC Corporation, Philippines
- Ministry of Mines - Canada
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Indika Energy - Indonesia
- The University of Queensland
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Baiduri Energy - Indonesia
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- PTC India Limited - India
- Sarangani Energy Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jindal Steel & Power Ltd - India
- Central Java Power - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Antam Resourcindo - Indonesia
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- GMR Energy Limited - India
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- Kideco Jaya Agung - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Heidelberg Cement - Germany
- Maheswari Brothers Coal Limited - India
- Altura Mining Limited, Indonesia
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
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