The History of Mining Act in Indonesia

From some sources of books  written  by  Indonesian writer concerning The History of Mining Act in Indonesia,  we understand that in  1899 : The (East) Indies Mining Act was passed which laid  down the ground rules under which mining operations, including those by private concerns might be conducted.

• One of the basic principle which was laid down in the Indische Minjwet of 1899  was that rights over land (Surface rights) is separated from the rights over the Mineral resources, these being vest to the the Governor

Prospecting for minerals was controlled by licenses issued by the Bureau of Mines or the Provincial administrations, and mining concessions were granted on application by the Governor General.

During these period, prospecting Licenses & Concessions could only be granted to  : Dutch Subjects, residents of the Netherlands Indies, and to Companies registered in the Netherlands or the Indies.

• In 1904 :   An Amendment was passed which froze the granting of concessions in an attempt to keep out new firms.

In 1918 : a New Amendment was passed under which the granting of new concession were resumed, which provides  more favorable terms to the Government.

Under the pre - 1904 concession contracts concessions were granted for a term of 75 years with the Government receiving a percentage of any oil produced plus a fixed price per acre of the concession area. 

We observed that under the concession contracts made after the 1918 amendment the concessionaire was required to pay the Netherland East Indies :

• 4% excise on the value of crude shipped,
• a 20% tax on oil profits, and
• a general tax on corporate profits of 20%.

According to the writer, these provisions was similar to the provisions in Middle East concession contracts on the same period.

by 1940 : 5 International companies was active in Indonesia. :

1912 : the Standard Oil Company of New Jersey began operations in Indonesia, latter merging operations with Mobil to form Stanvac.

In the 1930’s Standard Oil of California entered the scene, latter merging with Texaco to form Caltex.

In this book it is said that together with the Royal Dutch/Shell Company which at that time was the largest producers in Indonesia, these major companies was known as the Big Three..

In 1942, when the Japanese occupied Indonesia, the Indische Minwet of 1899 was rendered in operative, and in anticipation,  it appears that  the Dutch destroyed many of their oil facilities.

•  When the Japanese entered Indonesia, they put the oil operations under the regional military command and tried to rehabilitate the fields and oil facilities. With the Dutch gone, the Japanese forced to rely on experience Indonesian for help - a fact which strengthened Indonesian’ s confidence in their own ability to run the oil industry.

After the Japanese surrendered and the Indonesian declared its  independence in 1945 , and after taking  4(four) years  of war, a final agreement  was reached at the Round Table Conference in the Hague, which transfered the Netherlands East Indies(with exception of West Irian) to the Federal Republic of Indonesia.

In 1951 : The Indonesian Parlement passed a motion to create a commission to inquire in the problems of Oil & Mining Law, which urged the Government to form within 1 month a State Commission of Mining Affairs.

a) investigating asap problems of oil extraction, & of tin, coal, gold, silver & other mining In Indonesia.

b) Drafting an Indonesian Mining Law in harmony with present conditions.

c) Urges the Government to postpone all granting of concession & exploitation permits, pending the results of the work of the State Commission on Mining Affairs.

The Commission took 5 years to submit its Draft to the parliament.

• Not until 1960 did the Parliament adopt a New Mining Law (Law no 37/Prp 1960) and Oil and Gas Law (Law No.44/Prp 1960) both promulgated in the form of Emergence Acts to replace the 1988 Mining Law of the East Indies.

The New Statutes not only retained the State‘s Exclusive right to Mineral Resources contained in the colonial legislation but further make it more stronger  it by stipulating that * Only State is authorized to exploit the Mineral resources.

• The Ideas of Concessions, i.e. , the Grant by the State to a private party of rights to develop Mineral Resources in a certain area of Land  was abandoned. INDONESIA - Indonesian Exports, Marketing & Pricing.: An article from: APS Review Oil Market Trends

Only the State, as the custodian of the Indonesian people, or on its behalf  a state enterprise can have Mining Rights called an “ Authority to Mine” or Mining Authorization.”

Well, these are some interesting back grounds which was taken from the above interesting book;    

Natural Resources Created By The Creator

If you are allowed by the AL  MIGHTY to stay ==>  in this World  for quite a while, at a certain stage of your life Cycle  you will  realize that your life journey also rotates similarly  as :

• sun and and moon, day and night, 
• hungry, eat, full stomach, hungry, start eating again, full stomach, 
• you earn money, you spent your money, you are out of cash, start working  hard again, your earn money, you spent money  etc. 
• ups and down 
• like a merry go round; 
• spinning around 

If you happen to be a Muslim Believer, you can found this Rotation Fenomena  in the Holly Book        Al Quran, where it actually shows  the Sign of the Greatness, the Merciful of ALLAH the AL Mighty;

• The Important and significant thing is that  you start realizing  that ALLAH The Al Mighty has created this World  with all the Natural Resources distributed and scattered around the world  ready to be searched, find out, explored, mining out  it out, exploited, developed, transported, stored and sell  for the benefit of all mankind.  
• This process of Awareness of knowing our Creator : ALLAH is also following the ups and down rythm, where you have to maintain it on the up level by continously listening to the words of ALLAH  from the Al Quran and testing its reality in the Real World of your Real Day to day life; . 
  

Well, my life experienced as a Business Lawyer makes me becoming interested in looking and observing the Nature of the Hard Minerals such : as Copper, Iron Ore, Gold, Diamond, Bentonite, and Hydro carbon (Oil and Gas); 

• Gold is Valuable in its price ; 
• Diamond is the strongest Minerals if you want to crush with other Minerals, which therefore is  being used in the Drilling Bit,  known among others as Diamond Shamrock  Drilling Bit,  where the price of such Diamond Drilling Bit is equal to 2( two) new Brand Mercedes Car
• Benton  "cannot be melted down"  even in a very High Degree Temperature Plant and thus is used as to Shape other Minerals  in a High Boiling Temperature  Plant;        

The ALL Mighty has granted the Indonesian Archipelago  with full of Natural Resources; 

It is not human being who planted and created this Natural Resources regardless of their nationality; The human being are only being given Brain with  its built in Mind, capacity,  Soul, and Heart, instinct, willingness to search these Natural Resources by conducting General Survey, with Knowledge, Science,  and Capital Engineering, Infrastructure.

• Further this Human Being has to explore these Natural Resources  by conducting Seismic line services  in several appointed Coordinates, by first clearing the Surface Land from trees or houses ; and than planting the dynamite to be blown, where the sounds are detected ind captured  in the Seismographic instruments which will than be shown in a graphic picture showing the prospective contents of what is in the structure below the ground.   

If there are Mineral Resources determined to be commercial developed, these Human Being start developing  the production facilities from pipeline, station gathering, separation instruments to separate the  Oil from the water and sulfur if it is Hydrocarbon, and if it is Hard Minerals such as Coal to split the Coal from the Water, Sulfur, Ash; with the Technical Instruments developed by the Human Being using their Brain, and Mind; and develop the Coal Plant.

As a Business Lawyer in reviewing the Mineral Contracts, Cooperation Agreement between the relaeant Parties, the  Sales Coal Contract,  we have to understand the Nature of this  Mineral Business in order to be able to accommodate the willingness and desires of  the Business Players /Investors who are your Client in giving legal advice and drafting or reviewing the Purchase Sales Coal Contracts or if you are requested to conduct Legal Due Diligence if your Client is interested to acquire share of the Company who is operating a Mining Activities either Coal, Iron Ore or Magnesium. 

• It is really enjoying if you love your professional work and if you happen to search the real meaning of life and start questioning why are we dropped in this World and who had created these Huge World together with all what is contain  below  the Ground  which includes those Natural Resources which can really be useful to increase the Quality of Mankind. 
• Well, these are my thoughts  this morning when I walked up from my bed and start writing what is in my mind in this Blog of mine;Cheers and Good Luck and success
• Jakarta, April 17, 2011 Agung S.Suleiman 

IPM DRILLING

It is really interesting in discussing contracts aspects in the IPM Drilling. Well  if your Company is relatively small in terms of manpower within the Oil and Gas Explorations in Indonesia, you might as well thing of engaging IPM Drilling, since your do not have to tender 10 x for the Services relating to Drilling your Explorations or Producing Wells by just tender One IPM Drilling which is an Integrated Management Drilling

This  Drilling Services consists of Drilling Services itself, and shall than includes the Mud Services, Cementing Services, 

• Drilling Rig
• Logging Unit
• Cementing Unit
• Casing/Tubulars.
• Mud Engineering
• Waste  drilling  disposal
• Testing
• Transportation
• Fishing
• Directional Drilling/ Horiziontal
• Land – Heavy Equipment for road Constructions

Every Company who are specializing will be asked to supply the Materials. 

In this IPM Drilling – the Oil Company – Out sources all the Services relating to the Drilling activities  –  The Concept is Let the Contractor do it,  they  just  shift  the  Cost,  So  they  don not have to do  tender  process several times.

Thus the Oil and Gas Companies, can skip the procedure doing many tenders with many vendors 

Either  the Oil Company or the Drilling IPM Contractor  will design the Drilling  Program. If  The Drilling Contract Design this Drilling Program,  the Design Cost will be included in their Lump Sump Turnkey Project.. There is a 100% Turn Key project or Semi Turn Key.

The Drilling Contractor shall lead the Drilling Operations. If the Oil Company has got many manpower, they usually manage the Drilling activities. The Oil Company will engage several Companies : the Drillling Company, The Mud Contractor, Wireline Logging, Perforating, Fishing. 

But now a days the Drilling Companies shall do the Management of the Drilling several activities. 

This Drilling Company shall own or lease the Drilling Rig.  The Drilling Contractor shall enggage and manage all the relevant Supporting services such as the Cementing, Mudlogging, Casing-Tubing, Wireline Logging. Thus The Oil Company does not be worried how to manage such drilling other services activities. So this is a Turnkey P

Well as a Business Oil and Gas Operational Lawyer,  you may be engaged in Drafting the IPM Drilling Contracts or you may also end up in assisting the Drilling Company in establishing the Drilling Companies. There are many interesting Legal Aspects in these venture. There are several questions that you have to raise. Is the Drilling Company has to be a PT Local Company or can there be a Foreign PT PMA Drilling Company engaged in the Drilling activities. Thus there is the Company Act Law issues, If the Shareholders of the Drilling Company consist of a PT PMA Foreign Company, is the Drilling Company automatically become an Foreign PMA Company. 
These question has to be research with the BKPM, as well as the Director of Oil and Gas and BPMIGAS institutions. What Licenses are required to conduct such IPM Drilling Activities. 

How about the BKPM (Foreign Investment Coordination Body) facilities for the equipment that are being imported from outside of Indonesia; Can this Drilling Company be granted such Facilities  by BKPM or can they just use the Oil Companies' Facilities which are given such facilities under the PSC.

Well those are part of the interesting Issues that the Business Lawyer in the Oil and Gas activities have to check and dig out in assisting their Clients                  

Cheers
Agung S.Suleiman
Independent Business Lawyer  
 Jakarta, 2 April 2011  

Elements in Coal Trading

The Specs and quality of the Coal is really significant to be observed in trading Coal Products. You have to learn carefully from  the Coal Professional, when they are talking and discussing about the Calorie of the Coal. The Coal from Sumatera appears to be high grade ranging around 6.3 to 7.00. 

Stock pile of the Coal is really important to avoid delay in loading the Coal and  for the purpose of determining the Laycan or the time when you will ask the Ship to move or berth to the Terminal Port, for loading the Coal because you will be exposed with Demurage and Dead Freight from the Mother Vessel which will pass by the Buyer to us as the Seller.

If we agree with an FOB arrangement, and delay occurred  causing longer time for the agreed Loading time, this will result  additional cost to the Vessel for parking the Vessel  at the Port, whch will be passed to us by the Buyer of the Coal..  

To minimize the risk  you may try to request that your responsibility as the Seller in taking  the Coal Product is up to the Stock Pile, where you will ask part of payment be made by the Buyer when the Coal reached  the Stock Pile.  We have several experiences, where we are being exposed with Demurage and Dead Freight due to the delay on our part in meeting the agreed volume of Coal to be loaded to the Vessel during the Laycan, since there are certain level of the Quality /Spec Coal  which may reach the Rejection figure specified in the Coal Sales Contract .

As a Corporate Business lawyer involved in this situation we have to experienced upon the real reality occurring during the Loading and shipment of the Coal.    

As you may now, even though the Grade is below the agreed level, frequently the Buyers insist you to continue Loading the Coal Products to the Vessel, event though  Coal Spec reached the Rejection level shown in the Coal Sales Agreement , since it appears  there are always Buyers or Endusers who will  absorb such Coal products. 

However, it may be that since the Coal Product is blended, the Calories are being mixed resulting negotiation upon the adjustment price to the agreed Coal Price, is conducted after a while from the time  Shipment of the Coal had reached its destiny, in the sense that The Coal had been delivered by the Buyer to the Enduser, but adjustment of the Coal Price between the Seller and the Buyer had not been reached. .  

Well the above are some elements that we have to observe in dealing with Selling, Loading the Coal Products  experienced  during the Loading time of the Coal.

Jakarta 4th February 2011
Agung S.Suleiman.  

Challengging Oil Operations

Yes, here  I  am back in front of my computer, writing in by Blog AGUNGSS Business Lawyer Note. After having experienced Independent as an Independent  Business Lawyer for more than 12  11/2 Years since June 1998, I am now busy with Oil works and also Coal Mining Works.

The Oil Company which I am being assigned through Secondment by Saco Law  through its Holding Company,  is in the face of Commercial Production. It is really exiting since we are all busy in preparing the arrangements as to how to implement to  get the oil Production from below the Ground around 500 meters  to carry  and moved it  to the Terminal Port for lifting to the Tanker of the Buyers. Well, it is really interesting since, cash and funds are needed to transport and move such Crude Oil from the Oil  Field to the Terminal Port.   

Moving such oil can be done through pipeline facilities, however, funds are need to built such pipeline facilities. If we are intending to use existing pipeline of other Oil Companies in the Working area, in reality it  is not that easy since quality of the Oil which we are intending to flow through  such pipeline must meet the quality oil of the existing producing Oil Companies who are already using such pipeline facilities. 

The temperature of the oil has to be high with a certain degree of level so that the oil could still  move and being transported through such pipeline facilities. Bankers who are financing oil Companies needs to see the real oil products being actually sold to the Buyers.   

Bankers will only disburse a certain amount of funds needed by the Oil Company for the working capital and will only further disburse  if the Oil Companies can show the Oil Products really being sold to the Buyer at the Terminal Port of Point of Sales. 

Accordingly, there have to be business strategy by the Oil Company, as to how to show  the Bankers of the realization of such Sales of Oil. 

If the process of using the Pipeline facilities still needs a long time for realization, the alternative way out has to be made,  which among others are  by using Trucks to carry such Crude oil from the Oil Field to such Terminal Port.  There must also be Storage tankers needed  to store such Crude Oil before lifting  to the Tankers. 

This may initially be more costly compared to using the pipeline facilities. But since, we are competing with time to show the Bankers on the Sales of the Oil to the Buyers, we may than choose  using Trucks as the first priority action to be taken by Oil Companies who are in the early stage of growth. in building their Financial Strength.  

This is really challenging for us including fo the Oil Business Commercial Lawyer to prepare the required  contracts to stipulate the terms and conditions for implementing this business strategy.    

Good and Well Team work are needed to make these  challenges  become real and executable. We have to be professional  and  focused on the Goals and Priorities. These are really challenging operations experienced  by us involved  in the Oil Business Operations in Indonesia.

Cheers

Agung S.Suleiman

Jakarta 3rd  February 2011                 

Coal Trading Business

During this recent weeks, I have been really busy  involved in a team work  with our group members  relating to a certain Coal Trade  Project. It is really exiting, interesting and frustrating  because there seems to be difference of manners and attitude in approaching the price settlement  of Coal that had been loaded on the Vessel,  for approximately 15,000,000 MT of Coal. 

The issue was that the Coal Quality spec was not reaching the spec but was not rejected by the Purchaser, and requested to be loaded to the Vessel, with  conditions  proposed by the Purchaser that if the Coal is below  5500 Kcal/GAR, the price will be renegotiated. 

However, when we as  Seller had followed the instruction to load the Coal to the Vessel for shipment, the Purchaser seems not having room for negotiation, and had keep on insisting  to decide unilaterally, for which purpose we as the Seller who had followed the instructions of the Purchaser to load the Coal,  feels of not being treated fairly, which also resulted several of the stockholders, suffers delay in payment for their rendered services.

The Purchaser had requested that the pricing of the Coal must apply CV prorated basis plus discount of 20%, which resulted the figure far below the market price of the Coal. We as the Seller had moved our position from just applying prorated basis with discount to applying the market price. 

Well, in doing Coal Trading Business, we have to be professional and also have to honor the commitment that we had made. In practice even though the Sale and Coal Purchase Agreement  had been signed, if one of the Party   particularly the Purchaser had waived their rights to reject the Coal Commodity which had reached the rejection point, and requested to load the Coal immediately to the Vessel,  subsequently, such instructions has to be treated as a legal contractual binding commitments, for which  we have to honor our wordings made through such email,  which suggested for negotiation on the pricing of the Coal,  which in average had shown a certain Gross Caloric Value that had  been be determined by the Independent Consultant mutually agreed by the parties. 

There appears to be Coal Pricing Index,  where there are several Coal Kg Calorie  Value Indexes, where according to the Indonesian Mining Association News, Indonesia, one of the major Coal Exporter  through  PT. Coalindo Energi (PT CE), will soon launch the Indonesian Coal Mining Index ("ICI")  for example ICI 1 to 3 ranging from ICI 1 GROSS caloric Value GAR 6500 Kg Calorie, ICI 2 - 5500 Kg Calorie  and ICI  3 - 5000 Kg Calorie, where there is a range of pricing deduction, if it falls between these range index. From our brain storming discussions, it indicates that we may  have several alternatives /options to either apply (i) the prorate basis to get the pricing of the Coal or (ii) deducting a certain percentage, or (iii) we just  seek the market price of such average Coal Kg calorie on As Received Basis (ARB). 

As a Business Lawyer who is a member of  the Professional Coal Trading Team,  we really have to anticipate how if in the real practice there occurs, condition where the Quality of the Coal did not meet the required spec quality and rather had reached the rejection point but from the commercial basis,  the Purchaser had requested to waive its right to reject the Coal and insist on loading the Coal to the Vessel, but do not want to open its room for negotiation on the Price of the Coal that had been actually loaded to the Vessel ( FOB) and delivered to the Purchaser and had reached the End-user  .

The Rainy weather, must also be taken into consideration, since the Naught of the Vessel had to be closed to avoid flood of water causing The Total Moisture (TM) contents in the Coal Increase dramatically. 

One of the issues that also  have to be taken into consideration is relating to Demmurrage and Dead Freight issue, particularly if the Inventory of the Coal in the Stock Pile,  either within the Mining Location or in the Stock Pile in the Port is not sufficient in quantity, to fulfill the agreed amount  of Coal Bulk to be supplied,   which could cause Demmurrage and Dead Freight Exposures.     

Well, those are some of the issues that has to be anticipated in the real world of trading Coal for shipment.                      

Shareholder Loan

There are instances where a PT Limited Liability Company operating in Indonesia needs funds from its Shareholder. In this situation you as a Business Lawyer are being required to draft a  certain Shareholder Loan Agreement by your Client. If you are an In House Legal Counsel of such PT Company you may try to draft a first draft of such Shareholder Loan Agreement to be further reviewed by an Outside Lawyer. Click Here!

If there are several shareholders in such PT Company, there must firstly be a Shareholders Meeting  called  by the Board of Directors for a meeting with the agenda to request the shareholders to give such Shareholders Loan to the PT Company, where Minutes of the General Shareholders Meeting will be the legal basis  for the  Shareholders and the PT Company to enter into a Shareholder Agreement. As we understand under the Indonesian Limited Liability Company Law, the PT and its respective Shareholders are being treated respectively as an independent Law Subject in front of the Law.   Thus if the shareholder agreed to provide such Shareholder Loan, such Shareholder who are providing such Shareholder Loan has the right to demand for the repayment of the Shareholder Loan against the PT Company. S corporation shareholder loans: a cautionary tale.: An article from: The Tax Adviser

SUBORDINATE LOAN 

This Shareholder Loan has the level of subordinate Loan against Loan From a Bank made to such PT Limited Liability Company, meaning that if there is cash-in received by such PT from its business, the repayment has to be  firstly made by the PT  to the Bank and if there is remaining amount after being deducted for the operations of the PT Company such monies is allocated for the repayment to such Shareholder providing such Shareholder Loan to such PT Company.

This repayment to the Shareholder is also made first before dividend are distributed to the Shareholders. This all depends upon the agreement between the shareholders of the PT Company and the Shareholder who is providing such Loan. It is really interesting for a Business Lawyer to draft this Shareholder Loan Agreement since there are legal aspects of Civil Law regulating loan, and  there are Corporation PT Law regulating the corporation aspects of such PT, which have to be observed by the Business Lawyer in drafting the Shareholder Loan Agreement.      

   

Loan Agreements

If your Client needs some funds from a certain Financier, you may be requested to draft or review a Loan Agreement. In drafting this Loan Agreement there are several legal aspects that you have to draw your attention. You must know the amount of the Loan which your Client requires, the Disbursement of the Loan, and the Repayment of such Loan. In order to secure the Loan the Banks or Financier usually request a certain Independent Business Lawyer to conduct Legal Due Diligence to review several legal aspects that have to be observe to make sure that your Client is eligible to receive the Loan and will ask the purpose of your Client in requesting such Loan.      

Besides Legal Due Diligence, there may also be conducted the Financial Due Diligence for the purpose to review the Business Financial aspect relating to your Client Business. Is the purpose of such Loan for expansion of your Clients Business ? What is the project cash flow projections of your Clients Business.Who is the target market of your Client ? What is the market  share of your Clients selling products. Is your Client conducting business in Manufacturing a certain product ? Or is your Client conducting General Mining Business Operations ?

There are certain Bankers who looks at the reputation of your Clients Business. For instance if the Project is really feasible and your Client based on the Financial Records shows positive cash flows based on a certain Project that had been done by your Client, The Banker may trust your Client and provides a Project Financing arrangements, where the Banker is more focusing on the proven Cash in of the Projects in several projects that had been performed by you Client.   

If your Client has not yet shown Projects being performed, the Bankers may request several Corporate Assets of your Client such as Buildings, Plants, Machines, Heavy Equipments  as collateral  to secure the repayment of the Loan. As a Business Lawyer you need to review all the Legal aspects including the title ownership of such Corporate Assets.

The Bankers may also need to request some pledges upon the shares issued by your Clients Company. As  a Business Lawyer you need to review the Corporate Documents relating to the owner of the shares issued by your Clients Company.  Besides  reviewing the  Loan Agreements you may also need to draft or review  Collateral arrangements including the Fiduciary arrangements and probably may need to conduct checking with the Fiduciary Office relating the registering the Fiduciary Deeds.