Drafted By: Nasfiahtul Istani Daely, S.H.
Reviewed By: Noverizky Tri Putra, S.H., L.LM. (Adv.)
The project financing on mining sector is a financing technique on mining projects with a high level of risk and income, where the scope of mining activities is the exploitation of mineral and coal processing which consists of stages such as exploration, feasibility studies, construction, mining, processing to mining with the use of mining products or maintenance of mining products (Vide: Article 1 point 6 of the UU No. 3/2020).
In practice, there are several project financing platforms in the mining sector, as follows:
a. Company Capital (Equity)
Own capital or equity capital may come from the issuance of shares or derived from the company’s retained earnings (retained earnings).
b. National Strategic Project (PSN Project)
Executive officers are now empowered to prioritize and accelerate certain infrastructure projects identified as PSN Projects. One of them is a mining project that can be initiated by the government, state-owned or private companies. Example: The government established a coal gasification plant in Tanjung Enim, South Sumatra that was initiated by PT Bukit Asam Tbk, that became the PSN Project. PSN project status has administrative and licensing facilities, such as Exploration Mining Business License (IUP), Special Mining Business License (IUPK), Production Operation IUP, Production Operation IUP specifically for processing and/or refining, Production Operation IUP specifically for transportation and sales as stipulated in Perpres No. 109/2020 and PP No. 42/2021.
c. Initial Public Offering (IPO)
IPO is a process of distributing a certain portion of shares by selling its value to the public market. Therefore, from such sale of shares, it shall provide an additional financing for the company with the following process:
d. Banking Credit
Banking credit can be in the form of syndicated and non-syndicated loans. Syndicated loans are loans that are given jointly by several banks to certain debtors in the form of investment loans or working capital loans for mining companies. In practice, a syndicated credit agreement between creditors and debtors must regulate the detail of rights, obligations and its responsibility between the parties. For example, when a default occurs, sufficiently a default occur for one creditor means a default to another creditor. One of the intrict that might occured during the transaction is to identify the law and jurisdiction if one syndicated participants is a foreign entity that is subject to foreign law. Meanwhile, non-syndicated loans are bilateral loans, which are loans that are only financed by one bank with a smaller loan scale because they only work with one bank.
In principle, lending uses the 5C prudential principle, namely Character, Capacity, Capital, Collateral, and Condition of Economy provided that the OJK stipulates the regulation of the Maximum Lending Limit/legal lending limit through POJK No. 38/POJK.03/2019 to avoid non-performing loans.
e. Foreign Loans and Domestic Loans
Foreign Loans and Domestic Loans must comply with the principles of being transparent, accountable, efficient and effective, prudent, not accompanied by political ties, and not having a content that can disrupt the stability of State security (Vide: Article 2 of PP No. 10/2011).
An action in where a donor delivers an item free of charge to other party, where the grantor being able to withdraw the grant’s object for the benefit of a person that receiving the delivery of goods based on his/her decision as regulated in Article 1666 – Article 1693 of the Civil Code. Each mining project can receive any transfer of mechanism of grant related to anything such as land, shares or other tangible and intangible assets carried out by the grant mechanism and become the company’s assets or capital.
g. State Revenue and Expenditure Budget (APBN)/Regional Expenditure Revenue Budget (APBD)
The provision of APBN/APBD to a mining project is the right of the central and regional governments that is recognized as an addition to the value of the net worth (Vide: Article 3 paragraphs 4 and 5 in conjunction with Article 13 of UU No.1/2004).
h. Private Public Partnership (PPP)
PPP as an alternative financing mechanism in the provision of public services through long-term cooperation contracts, between:
From the project financing that mentioned above, it should be noted that the mining project financing always pays attention to:
In addition, it is necessary to note that the specific factors that being a concern or threat that are quite high for Banks/Lenders related to the approval of financing transactions are as follows:
As the project financing mechanism described above, there is a financing structure in mining financing projects, which are as follows:
a. Revolving Loan
b. Standby Loan
This loan is standby to deal with a development in financial condition or an insurance fund that will be available when the project is completed.
Fiduciary guarantees can be tangible consisting of movable objects such as mining machines, mining heavy equipment, motor vehicles and other valuables used in mining facilities, as well as immovable objects such as land, buildings, merchandise (inventory) and so on. The coal as an object of inventory can be guarantee in a coal project financing in accordance with the provisions of Article 6 letter c of UU No. 42/1999, the fiduciary guarantee deed includes a description of the type and quality of the coal. The process of the occurrence of fiduciary guarantees through the stages of imposition of fiduciary guarantees, stages of registration of fiduciary guarantees (Vide: Article 4 jo. Article 5 jis. Article 6 of UU No. 42/1999).
Hedging transactions is a method to anticipate losses arising from exchange rate fluctuations, aiming to reduce the risk that is expected to arise from transactions or investments made by investors or companies to minimize unexpected business risks. Hedging is regulated in the Minister of Finance Regulation No. 36/PMK.08/2017 concerning Hedging Transactions in Government Debt Management.
To facilitate the project financing mechanism, the following is a simple explanation of the project financing structure:
From the above scheme, the explanation are as follows:
Furthermore, it should be noted that in project financing, guarantees are one of the considerations whether or not a project financing could be accepted. Collateral can be in the form of a fiduciary guarantee as described above, or a guarantee for shares. Based on M. Yahya Harahap’s book, in his book Limited Liability Company Law (pages 274-275), shares can be pledged according to their form as movable property with the following conditions:
Apart from shares, collateral can be in the form of land rights that can be encumbered with mortgage rights, namely property rights, cultivation rights, and building rights (Vide: Article 4 of UU No. 4/1996). If the debtor is in default, then the right of the first mortgage holder to sell the object of the mortgage through a public auction and to take repayment of his receivables from the proceeds of the sale (Vide: Article 6 of UU No. 5/1960).
Furthermore, there are also Banking Guarantees with the following types of guarantees, as follows:
a. Performance Bond
Bank guarantee issued for the purposes of the work or project undertaken by the Bank guarantee applicant.
b. Advance Payment Bond
Bank guarantee issued to guarantee the down payment that has been received by the Bank guarantee applicant for the work being carried out.
c. Maintenance/Warranty Bond
Bank Guarantee issued for the needs of the applicant for the work that has been completed.
d. Retention Bond
Bank Guarantee issued for the purpose of guaranteeing an amount of value/money which has an amount of around 10% to 30% of the project value.
e. Standby Letter of Credit (Standby L/C)
A form of guarantee from the Bank issuing the Standby L/C to the Beneficiary against the possibility of default on the Applicant (the guaranteed party/standby L/C applicant), in this case the Bank’s Debtor/Customer.
In principle, the world depends on the coal sector even though developed countries are pushing policies related to renewable energy, but coal-fired power plants cannot just be stopped. Indonesia, with its large potential of natural mineral resources, is expected to have regulations that facilitate the successful financing of coal projects for the success of long-term economic development, but still prioritize environmental factors and their consequences in every coal landing platform offered.