Coal Mining Update: Contract Extension Relaxation, Price Pressures & the Government’s Dilemma
By revising Indonesian Government Regulation No. 23/2010, the Indonesian government plans to provide local coal miners more certainty by allowing an earlier submission of a request for the extension of mining concessions. Stakeholders in the mining sector argue that this would considerably strengthen the nation’s investment climate, specifically the coal mining industry, on the back of improved legal certainty.
The Energy and Mineral Resources Ministry proposes to allow holders of long-standing Coal Contracts of Work (in Indonesian: Perjanjian Karya Pengusahaan Pertambangan Batubara, or PKP2B) to request for an extension of their mining activities five years before existing contracts expire. Under current regulations the miner can only request for this extension starting from two years before the existing contract expires. Meanwhile, the new regulation also states that the miner should request for an extension – the latest - one year before the current contract expires (which is up from six months in the preceding regulation). Therefore, in other words, the new regulation provides a period between one and five years before the existing contract expires for the PKP2B-holder to arrange for the extension of mining concessions.
However, the extension will also mean that PKP2B-holders, which are mostly the established larger players in Indonesia's mining sector, see their PKP2B contracts being replaced with the Special Mining Business License (in Indonesian: Izin Usaha Pertambangan Khusus, or IUPK). This is in line with the 2009 Mining Law (Law No. 4/2009 on Mineral and Coal Mining) that had introduced the Mining Business License (IUP) and IUPK as the new legal vehicles in the mining industry. The 2009 Mining Law was a controversial one that introduced several protectionist regulations that negatively affect foreign players in Indonesia’s mining sector.
There are currently 68 PKP2B-holders active in Indonesia.
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This articles discusses:
• the latest plan of the Indonesian government to improve the investment climate in the coal mining sector
• direction of the coal price; what are the (inter)national factors that are causing coal price movements?
• Indonesia's coal production, domestic market obligation & export
• an overview of Indonesia's coal mining sector
Read the full article in the November 2018 edition of our monthly research report. You can purchase this report by sending an email to info@indonesia-investments.com or a WhatsApp message to the following number: +62(0)8788.410.6944
