MEMR decree on determination of minimum domestic coal sales requirement for 2011

MINISTER OF ENERGY AND MINERAL RESOURCES
DECREE REGARDING THE DETERMINATION OF
MINIMUM DOMESTIC COAL SALES REQUIREMENT
FOR YEAR 2011

SUMMARY AND ANALYSIS OF KEY ARTICLES

INTRODUCTORY NOTES

(18 October 2010)--This Summary & Analysis is intended as an overview only of Minister of Energy and Mineral Resources (?MoEMR) Decree re Determination of Minimum Domestic Coal Supply Requirement for Year 2011, in respect of the Domestic Market Obligation, which was issued on 31 August 2010 (?Domestic Coal Supply 2011 Decree?).

This Summary & Analysis reflects our current understanding only of the Domestic Coal Supply 2011 Decree and is subject to change as that understanding develops and evolves.

This Summary & Analysis should be read in conjunction with our earlier (i) summary and analysis, dated 9 January 2009, of the New Mining. Law, (ii) summary and analysis, dated 30 November 2009, of the Implementing Regulation on Mining Services, (iii) summary and analysis, dated 7 January 2010, of the second draft of the Implementing Regulation on Reclamation & Post Mining Activities, (iv) summary and analysis, dated 25 January 2010, of the Regulation on Prioritization of Coal and Mineral Supply for Domestic Interest (?Domestic Market Obligation Regulation?), (v) summary and analysis, dated 19 February 2010, of the Implementing Regulation on Coal Mining Enterprise Activities, (vi) summary and analysis, dated 13 September 2010, of the Implementing Regulation on Mining Direction & Supervision and (vii) summary and analysis, dated 5 October 2010, of the Implementing Regulation on Benchmark Price Determination. Copies of these earlier Summaries & Analyses are available upon request.

The use of implementing regulations and decrees to augment a law is a very common practice in Indonesia. Laws are passed by the Indonesian Parliament with the intention they will set out the broad parameters only of a new regulatory regime while the details of the new regulatory regime will be provided in one or more implementing regulations and other instruments issued by the Ministry and or officials of the Ministry with primary responsibility for overseeing the application of the new regulatory regime. The use of the Domestic Coal Supply 2011 Decree to expand on Article 7, Paragraph 3 of the Domestic Market Obligation Regulation is, therefore, entirely consistent with long established Indonesian legislative practice and procedure.

Many of the points made in this Summary & Analysis are necessarily speculative in nature and subject to further clarification and confirmation. Accordingly, it would be prudent not to rely solely on this Summary & Analysis but, rather, to seek specific legal advice with respect to any issue concerning the Domestic Coal Supply 2011 Decree before making a material business decision regarding the same. CHRISTIAN TEO & ASSOCIATES would be pleased to assist you in this regard. Our contact details are set out below.

Mr. Christian B. Teo
Partner
Address : CHRISTIAN TEO & ASSOCIATES
The Indonesia Stock Exchange Building
Tower II Floor 14 Suite 1405
Sudirman Central Business District
Jakarta 12190
INDONESIA
Email : cteo@cteolaw.com
Telephone : [62-21] 515 0280
Facsimile : [62-21] 515 0281
Mobile : [62-21] 818 124 747

Mr. Bill Sullivan
Licensed Foreign Advocate
Email : bsullivan@cteolaw.com
Mobile : [62-21] 8158506 0978

EXECUTIVE SUMMARY

1. The importance of the Coal Supply 2011 Decree rests in the fact that it is the first concrete application of the Domestic Market Obligation and, as such, provides important insights into how the Domestic Market Obligation will work fn practice.

2. As might have been expected, PLN?s need for coal dominates the calculation of the 2011 domestic coal requirement amounting to 70.69% of the total domestic coal requirement.

3. The 2011 domestic coal selling percentage (i.e., the percentage of coal production which must be made available for domestic users in 2011 is 24.11%.

4. For 2011, however, the Domestic Market Obligation is only being imposed on certain Coal Mining Enterprises rather than on all Coal Mining Enterprises.

5. 42 holders of Coal Contracts of Work and, State Owned Company, but only 10 Exploitation KP / Production Operation IUP Holders, are the subject of the Domestic Market Obligation in 2011.

6. To the extent that the Coal Supply 2011 Decree is indicative of MoEMR?s intention in future years, it seems likely that, unless and until there is a dramatic increase in the domestic demand for coal, small and medium size holders of Exploitation KPs/Production Operation IUPs are going to be largely (although not entirely) exempted from the Domestic Market Obligation in any meaningful sense.

SUMMARY & ANALYSIS

1. The Government has determined the minimum domestic coal supply requirement for 2011 on the basis of the Domestic Coal Supply 2011 Decree which came into force on 31 August 2010.

2. The estimated domestic coal supply requirement in 2011 is 78,97 million tones.

3. The identified domestic coal end users and their individual domestic coal requirements for 2011 are as follows:

NO	Company	MILLION TON	%	Gross Calorific Value (GCV)
1.	Coal-Fired Power Plant	?	?	?
?	1. PT PLN (Persero)	55.82	70.69	4.000 - 5.200
?	2. IPP	8.97	11.36	4.000 - 5.200
?	3. PT FREEPORT INDONESIA	0.83	1.05	5.650 - 6.150
?	4. PT NEWMONT NUSATENGGARA	0.47	0.60	5.200
?	5. PT PUSAKA JAYA PALU POWER	0.19	0.24	5.000
B.	METALLURGY	?	?	?
?	1. PT INCO Tbk.	0.14	0.18	5.900
?	2. PT ANTAM Tbk.	0.20	0.25	≥ 6.000
C.	CEMENT, FERTILIZER AND TEXTILE	?	?	?
?	1. CEMENT	8.86	11.22	4.100 - 6.300
?	2. FERTILIZER	0.92	1.16	4.000 - 5.000
	3. PULP	0.60	0.76	4.500 - 5000
?	4. TEXTILE AND TEXTILE PRODUCT	1.97	2.49	5.000 - 6.500
TOTAL		78.97	100	?

The Domestic Coal Supply 2011 Decree only applies to certain Coal Mining Enterprises as follows:

NO.	COMPANY
A.	HOLDERS OF COAL CONTRACT OF WORKS (CCoW)
	1. PT ADARO INDONESIA
?	2. PT ANTANG GUNUNG MERATUS
?	3. PT ARUTMIN INDONESIA
?	4. PT ASMIN KOALINDO TUHUP
?	5. PT BAHARI CAKRAWALA SEBUKU
?	6. PT BANGUN BANUA PERSADA KALIMANTAN
?	7. PD BARAMARTA
?	8. PT BERAU COAL
?	9. PT BORNEO INDOBARA
?	10. PT BATUALAM SELARAS
?	11. PT FIRMAN KETAUN PERKASA
?	12. PT GUNUNGBAYAN PRATAMACOAL
?	13. PT INDOMINCO MANDIRI
?	14. PT INSANI BARAPERKASA
?	15. PT INTEREX SACRA RAYA
?	16. PT INTITIRTA PRIMASAKTI
?	17. PT JORONG BARUTAMA GRESTON
?	18. PT KADYA CARAKA MULIA
?	19. PT KALIMANTAN ENERGI LESTARI
?	20. PT KALTIM PRIMA COAL
?	21. PT KIDECO JAYA AGUNG
?	22. PT KARTIKA SELABUMI MINING
?	23. PT LANNA HARITA INDONESIA
?	24. PT MAHAKAM SUMBER JAYA
?	25. PT MANDIRI INTI PERKASA
?	26. PT MANTIMIN COAL MINING
?	27. PT MULTI HARAPAN UTAMA
?	28. PT MULTI TAMBANGJAYA UTAMA
?	29. PT MARUNDA GRAHA MINERAL
?	30. PT NUSANTARA THERMAL COAL
?	31. PT PERKASA INAKAKERTA
?	32. PT PESONA KHATULISTIWA NUSANTARA
?	33. PT RIAU BARA HARUM
?	34. PT SANTAN BATUBARA
?	35. PT SENAMAS ENERGINDO MULIA
?	36. PT SINGLURUS PRATAMA
?	37. PT SUMBER KURNIA BUANA
?	38. PT TANITO HARUM
?	39. PT TANJUNG ALAM JAYA
?	40. PT TRUBAINDO COAL MINING
?	41. PT TEGUH SINAR ABADI
?	42. PT WAHANA BARATAMA MINING
B.	STATE-OWNED
?	PT TAMBANG BATUBARA BUKIT ASAM (PTBA)
C.	KP and/or IUP
?	1. PT ADIMITRA BARATAMA NUSANTARA
?	2. PT ARZARA BARAINDO
?	3. PT BUKIT BAIDURI ENERGI
?	4. PT JEMBAYAN MUARABARA
?	5. PT KALTIM BATUMANUNGGAL
?	6. PT KEMILAU RINDANG ABADI
?	7. PT LAMINDO INTER MULTIKON
?	8. PT LEMBUSWANA
	9. PT MULTI SARANA AVINDO
?	10. PT PIPIT MUTIARA JAYA

(together, the ?Certain Coal Mining Enterprises?).

5. The estimated 2011 coal production for the Certain Coal Mining Enterprises is 326.65 million tones.

6. The minimum domestic coal selling percentage applicable to each of the Certain Coal Mining Enterprises in 2011 is 24.17%. (ends)