14 Mar 2018
Ministry Moves Quickly to Limit Application of Coal Price Caps to New Contracts
In our Client Update published on 12 March 2018, we analyzed Minister of Mines & Energy Decree No. 1395K/30/MEM/2018 (“Decree 1395”), issued on 9 March 2018, which places price caps on coal supplied for power generation in the public interest. As we mentioned in the ABNR Commentary section of that update, the coal industry is dominated by locally owned companies or companies listed on the Indonesia Stock Exchange, so there would likely be determined lobbying by the industry to reduce or limit the impact of Decree 1395.
It appears that this anticipated lobbying kicked off early, as Decree 1395 was quickly amended on 12 March 2018 by Minister of Mines & Energy Decree No. 1410 K/30/MEM/2018 (“Decree 1410”), after having been on the statute books for just four days. This must surely place Decree 1395 up there among the most rapidly revised statutory provisions in Indonesian legal history, at least in modern times.
The specific provisions of Decree 1395 that have been amended by Decree 1410 are Paragraph Seven and Paragraph Nine, which taken together (prior to amendment) meant that the coal price caps were to be effective from 1 January 2018, while Decree 1395 itself was only issued on 9 March 2018. Not surprisingly, this raised eyebrows, not just because of its retroactive effect but also because it contained no exemptions or guidance for the treatment of contracts signed prior to 9 March 2018. For example, would the coal prices in such contracts need to be adjusted downwards so as to comply with Decree 1395? If that was the case, it would obviously have opened up a Pandora’s Box of legal challenges from understandably aggrieved parties.
This issue has now been resolved by Decree 1410, which amends Paragraph Seven and Paragraph Nine of Decree 1395 so as to make the price-cap provisions effective from 9 March 2018, the date of issuance of Decree 1395. Naturally, those miners who would have been adversely affected by the retroactive application of Decree 1395 will now be breathing a sigh of relief. (By: Giffy Pardede: firstname.lastname@example.org & Rendi Prahara Septiawedi: email@example.com)