Foreign investors should buy into Indonesia's coal market
Panelists on the IFLR Indonesia Forum 'M&A Structuring'
session complained regulatory revisions to Indonesia's 2009
mining law had fostered uncertainty in the sector in
significantly extending the divestment requirements within the
The 2012 government regulation 24 (GR24) requires foreign
investors to follow a tiered divestment process. In the sixth
year of acquisition an asset must first be offered to central
government then to provincial and municipal entities, followed
by state owned enterprises, public and finally private
companies. The move has significantly complicated the mining
investment process for overseas buyers.
But Ancora International's general counsel Nicholas Serwer
suggested that prospective investors in Indonesias coal
sector should be aware that there are uncertainties as to how
several details of the regulatory regime may be implemented in
practice. They should also note that the upcoming
election cycle may present uncertainties for the sector,
Others warned the coal sector was high risk. One panelist said
the sector could very quickly become a political football.
It's very easy for politicians to make nationalistic hay
out of it, and say if foreigners don't come in so be it because
it's our coal, he said.
"Combine that with the number of regulatory requirements
swirling around the sector presently, and the fact that coal
prices are dropping with no immediate prospect for them to be
turning round, I think it's fair to predict we are maybe
heading into quiet period for coal," the panelist said.
O' Melveny & Myers' Joel Hogarth said GR24 had
significantly deterred foreign investors from the market.
"Regulators should consult before simply pinging rules out into
market," he said. "Regulations are being issued in a way that
is absolutely haphazard and the result is chaotic. Clients are
now questioning whether they want to invest in the sector at
O' Melveny & Myers' Siew Kam Boon agreed there were a lot
of unclear areas in Indonesia's current mining law regime. She
recommended regulators interpret such uncertainties in a way
that scaled back on some of the harsher recent legislative
Nonetheless, Hogarth, Boon and Serwer agreed the regulatory
treatment of the banking sector had developed much more
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