COALspot.com keeps you connected across the coal world
  • OCT 2019 INDONESIAN COAL PRICE REFERENCE FOR EXPORTS AND DOMESTIC BUYERS INCLUDING POWER PRODUCERS FIXED AT US$ 64.80 A TON
  • SHARE YOUR CORPORATE COAL & SHIPPING NEWS WITH US - NEWS@COALSPOT.COM
  • WE WELCOME ARTICLE SUBMISSIONS FROM EXPERTS IN THE AREAS OF COAL, MINING, SHIPPING, ETC.

Submit Your Articles
We welcome article submissions from experts in the areas of coal, mining, shipping, etc.

To Submit your article please click here.

International Energy Events


WTI Crude Oil

BRENT Crude Oil

Search News
Latest CoalNews Headlines
Monday, 05 September 11
INDONESIAN COAL BENCHMARK PRICE - ANALYSIS


Analyst : Sunil K Kumbhat
COALspot.com - As a part of the Government’s efforts to stop transfer pricing abuses which have resulted in the loss of production royalties in recent years Govt of Indonesia issued  Regulation No.17 of 2010 entitled "Procedures to Determine the Benchmark Price for Mineral and Coal Sales" .

Apart from  setting out the procedures to determine the benchmark price for the sale of coal and minerals, Regulation  imposes other obligations on mineral and coal producers (that is, the holders of Production Operation IUPs and IUPKs) when making sales.This move has been seen as important as the benchmark Coal price is expected to provide optimum price and help goverment in calculating potential State Revenue. The new regulations will allow the Indonesian government to get the right amount of royalty , and the taxable revenues from the sector will also move up to the correct levels. It will also stop the practice of transfer pricing. The government has put in a strong framework.

The following are some key points highlights the provisions of regulation  and the likely impact it will have on mine owners, including on their sales activities, royalty calculations and administrative obligations:

Obligation to follow benchmark price
Regulation  provides that mineral and coal producers are obliged to sell minerals and coal based on a regulated benchmark price, whether for domestic or export sales.

The benchmark pricing obligation applies to all minerals and coal sales to third parties, including to any affiliate of the mineral and coal producer (which includes any party that has direct ownership in the holder of a Production Operation IUP or a Production Operation IUPK as well as any party that may indirectly influence the decision-making of such holders).

Determination of benchmark price
Regulation  provides that the benchmark price for  minerals and coal will be determined by the Director General of Minerals and Coal (DGMC) .  The benchmark price for non-metallic minerals and rocks will be determined by either the Governor or the Regent/Mayor, as appropriate.

Different methods will be used to determine the benchmark price for different commodities. For metallic minerals, the DGMC will determine the benchmark price for each metallic mineral monthly using a formula that refers to international market prices. For coal, the DGMC will determine separate benchmark prices for metallurgical coal, thermal coal and low rank coal monthly.No formal definition of low rank coal exists , however in the past ;MEMR has referred to low rank coal as any coal with  gross calorific value( ADB Basis) of less than 5100 kca/kg. The benchmark price for metallurgical and thermal coal will use a formula that refers to the average coal prices based on local and international market indices.As a system  government will determine Coal Price Reference (Harga Batubara Acuan or HPA) by averaging the calorie value of coal in four coal price indexes, namely :

1.Newcastle Coal Index,
2.Global Coal Index,
3.Platts and
4.Indonesia Coal Index (ICI).


The first two indexes represented international price, while the last two indexes represent local coal prices. Each coal category has a weight of 25 percent.  The coal category will divided based on coal quality, which is set at 6,322 kcal/kg (arb), moisture content at 8 percent (arb), sulfur content of 0.8 percent (arb), and ash content at 15 percent (arb).

After determining the Coal Price Reference (HBA), the benchmark coal price (HPB) is then determined. There will be 8 benchmark prices category, representing the quality of the coal, starting from 4,200 up to 7,000 kcal/kg.

For that price of coal other than 8 classes of HPB, prices are determined by interpolation approaches or determining HPB based on a certain formula.

Sales of minerals and coal
The benchmark price is set on the basis of the price paid for Coal at the point of Sale by way of FOB Vessel. Sales of metals, ore, concentrate or other intermediary products can be made :

1.Free on Board (FOB) mother vessel or
2.FOB barge basis.
3.Sales can also be made to end users domestically or in the form of Cost Insurance Freight (CIF) or
4.Cost and Freight (C&F).


In calculating the sales price for FOB mother vessel sales for royalty payment purposes, holders of Production Operation IUPs for metallic minerals must refer to the benchmark price. For  sales that are not made FOB mother vessel basis (including FOB barge sales), the benchmark price may be adjusted by adding or subtracting an amount based on certain recognised costs approved by the DGMC.

While the principle of deducting certain costs from the benchmark price for the purpose of royalty calculations would appear to be reasonable, Regulation  leaves open the possibility that there may be costs that could adjust the benchmark price by being added to, rather than being subtracted from, the benchmark price. The circumstances under which costs would be added to the benchmark price are not yet regulated.

Adjustments can include costs incurred for barging, survey, trans-shipment, treatment as well as refinery and/or metal payable and/or insurance costs. For coal, sales are contemplated in the form of FOB mother vessel, FOB barge, within an island to an end user or on a CIF or CF basis. In calculating the sales price, holders of Production Operation IUPs for coal to be sold FOB mother vessel must refer to the benchmark price. Again, for non-FOB mother vessel sales (including FOB barge sales), certain costs may be added or subtracted as approved by the DGMC.

Under the new sales price regime for coal, the production royalty for FOB mother vessel sales will effectively also be imposed on barge transportation and trans-shipment costs (as well as survey and insurance costs), which are not able to be subtracted from the selling price.

Accordingly, all royalties for FOB mother vessel sales are now assessed on the full delivered cost FOB mother vessel without adjustment for costs. Regulation  provides that further details on the procedures to determine the amount of “adjustment costs” will be set out by the DGMC in a separate DGMC regulation.

Benchmark Price for calculation of royalties
For royalty calculations, regulation  provides that for minerals and coal sales made FOB mother vessel basis, the Government will take the higher of the contractually-agreed price or the benchmark price.  On the other hand, for non-FOB mother vessel sales such as mineral or coal sales by way of FOB barge, the production royalties will be calculated using:

• (a) the contracted sales price, if the contracted sales price is higher than the benchmark price, after adding or subtracting the adjustment amount (adjusted benchmark price); or
• (b) the adjusted benchmark price, if the sales price is the same as or lower than the adjusted benchmark price.

Post sales Reporting
Coal producers are required to submit post-sales reports on the sales of their mineral and coal commodities every month, together with supporting information including invoices and bills of lading,quality reports and barging Costs as well as export declarations and surveyor reports for exported commodities. This  new reporting obligations will add significant  administrative burdens to mining companies.

Sale of coal for certain purposes
Coal of certain types (including fine coal, reject coal and coal with certain impurities) for domestic use may be sold below the coal benchmark price, upon approval of the Govt (DGMC) which  will issue separate  regulations regarding what types of coal will fall within this exception.

Similarly, coal to be used for certain purposes in the domestic market may be sold below the coal benchmark price, upon approval of the Govt.

The Govt will issue further regulations on the purposes that will be exempted. Regulation  indicates that coal used for individual needs  or for the development of underdeveloped or poorly developed regions will be exempted from the benchmark pricing requirements.

Impact on existing coal and/or mineral sales contracts


All existing supply contracts ( Both Spot and term Contracts) with Indonesian mining firms will have to be brought in line with this new benchmark regulations by 22nd September 2011. Spot sale contracts must be adjusted by no later than six months after the effective date of Regulation No. 17 (that is, by 22 March 2011).

Term sales contracts must be adjusted by no later than 12 months after the effective date of Regulation No. 17 (that is, by 22 September 2011).

Sanctions
Regulation provides that the Government can impose a range of administrative penalties on mineral and coal producers who fail to comply with the provisions of Regulation.

Penalties range from written warnings, temporary suspension of sales, and ultimately, cancellation of the licences’. Due to the severity of such sanctions, mining companies will need to pay particular notice to the requirement of this new regulation.


Indian Impact
For India, the situation will be aggravated by stagnation in domestic production even as demand has increased. With up to 100,000 MW of capacity addition likely in the 12 th plan period starting next year, more coal-based projects may need to scout overseas for fuel.

Three to five years back, domestic coal production was able to keep pace with the demand from power producers. However in 2010, domestic production has remained at a flat level, while there has been a sudden increase in demand from Indian power companies.

With a substantial part of its imported coal requirement already coming from Indonesia, India’s appetite is expected to grow further. India's coal imports from Indonesia are rising every year. In 2010, it overtook Japan to become the second largest importer of Indonesian coal after China. It is expected that  India may become the biggest importer of Indonesian coal in 2012.

The regulation is likely to increase the price of coal mainly for all Indian Power  Projects  using imported coal from Indonesia. The impact on the tariff of such projects may vary, depending upon the quality of imported coal and fuel mix. All existing supply agreements with Indonesian mining firms will have to be brought in line with this new benchmark by 22nd September 2011. The implementation of this new regulation will adversely impact all existing and future Coal based power plants importing Coal from Indonesia.The new regulations will allow the Indonesian government to get the right amount of royalty , and the taxable revenues from the sector will also move up to the correct levels. It will also stop the practice of transfer pricing. The government has put in a strong framework.

Given the long-term demand fundamentals, current high coal price scenario may continue to squeeze margins (of Indian power producers). This may well be the end of the road for cheap Indonesian coal.

Conclusion
Whilst the intention behind the minimum pricing regulation is to stop transfer pricing abuses which according to Govt, have plagued the Indonesian mining industry( particularly the Coal mining Industry) over recent years, the question is whether this intention has been implemented in a way which is inconsistent with genuine , arms -length commercial practices which exist in the market. (updated on 5 Sept 2011)
Analyst By : Sunil K Kumbhat

The views and opinions / conclusion expressed on this analysis is purely the writers’ own



If you believe an article violates your rights or the rights of others, please contact us.

Recent News

Monday, 14 October 19
WINTER OIL MARKET OUTLOOK - OPEC
Product markets in the last two months have benefitted from seasonal maintenance which have led to a tighter product market environment, providing ...


Sunday, 13 October 19
INDONESIA: PANAMAX VESSELS OPEN SOUTH CHINA WERE REPORTEDLY FIXED AT $14,000 LEVEL, WITH REDELIVERY BACK IN CHINA - BALTIC BRIEFING
Capesize The Capesize market managed to find a floor and rally a little this week after several weeks of declines. While the West Australia to ...


Friday, 11 October 19
INDIAN MINERS REJECT PLAN TO LINK NATIONAL COAL INDEX TO FOREIGN PRICES - REUTERS
India’s miners are rejecting a government proposal to establish a national coal index that would be linked to international prices, documents ...


Friday, 11 October 19
THE OCTOBER BENCHMARK PRICE OF INDONESIAN THERMAL COAL DECLINES TO LOWEST SINCE OCTOBER 2016
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...


Friday, 11 October 19
KOREA SOUTH-EAST POWER TO IMPORT LCV COAL IN NOVEMBER
COALspot.com: South Korea’s Korea South-East Power Co., Ltd. (KOEN) has issued an international tender for 75,000 Metric Tons low calorific v ...


   1 2 3 4 5   
Showing 1 to 5 news of total 5554
News by Category
Popular News
 
Total Members : 26,537
Member
Panelist
User ID
Password
Remember Me
By logging on you accept our TERMS OF USE.
Free
Register
Forgot Password
 
Our Members Are From ...

  • Price Waterhouse Coopers - Russia
  • GMR Energy Limited - India
  • KEPCO - South Korea
  • Sucofindo - Indonesia
  • Peabody Energy - USA
  • Karaikal Port Pvt Ltd - India
  • Truba Alam Manunggal Engineering.Tbk - Indonesia
  • Electricity Generating Authority of Thailand
  • Posco Energy - South Korea
  • PTC India Limited - India
  • Kalimantan Lumbung Energi - Indonesia
  • Mjunction Services Limited - India
  • Global Coal Blending Company Limited - Australia
  • Gujarat Mineral Development Corp Ltd - India
  • ASAPP Information Group - India
  • Jaiprakash Power Ventures ltd
  • Bank of America
  • Samtan Co., Ltd - South Korea
  • Fearnleys - India
  • Bhatia International Limited - India
  • Ind-Barath Power Infra Limited - India
  • APGENCO India
  • Holcim Trading Pte Ltd - Singapore
  • Gupta Coal India Ltd
  • Malabar Cements Ltd - India
  • Australian Coal Association
  • Jatenergy - Australia
  • Runge Indonesia
  • IMC Shipping - Singapore
  • McKinsey & Co - India
  • Bulk Trading Sa - Switzerland
  • Qatrana Cement - Jordan
  • Salva Resources Pvt Ltd - India
  • Rudhra Energy - India
  • CIMB Investment Bank - Malaysia
  • Globalindo Alam Lestari - Indonesia
  • Russian Coal LLC
  • Uttam Galva Steels Limited - India
  • Central Java Power - Indonesia
  • Parry Sugars Refinery, India
  • Glencore India Pvt. Ltd
  • Parliament of New Zealand
  • Infraline Energy - India
  • PetroVietnam Power Coal Import and Supply Company
  • TNB Fuel Sdn Bhd - Malaysia
  • Reliance Power - India
  • Mitsubishi Corporation
  • Malco - India
  • Lafarge - France
  • PowerSource Philippines DevCo
  • Power Finance Corporation Ltd., India
  • SUEK AG - Indonesia
  • Petrosea - Indonesia
  • SGS (Thailand) Limited
  • Eastern Coal Council - USA
  • IOL Indonesia
  • Permata Bank - Indonesia
  • Heidelberg Cement - Germany
  • Carbofer General Trading SA - India
  • Aditya Birla Group - India
  • Kaltim Prima Coal - Indonesia
  • EIA - United States
  • Alfred C Toepfer International GmbH - Germany
  • Planning Commission, India
  • ETA - Dubai
  • Tamil Nadu electricity Board
  • ICICI Bank Limited - India
  • Latin American Coal - Colombia
  • Videocon Industries ltd - India
  • IHS Mccloskey Coal Group - USA
  • Leighton Contractors Pty Ltd - Australia
  • J M Baxi & Co - India
  • Intertek Mineral Services - Indonesia
  • Billiton Holdings Pty Ltd - Australia
  • Thomson Reuters GRC
  • Merrill Lynch Bank
  • Cigading International Bulk Terminal - Indonesia
  • Ministry of Finance - Indonesia
  • Eastern Energy - Thailand
  • Geoservices-GeoAssay Lab
  • CoalTek, United States
  • Binh Thuan Hamico - Vietnam
  • KPMG - USA
  • Coeclerici Indonesia
  • Central Electricity Authority - India
  • WorleyParsons
  • Thiess Contractors Indonesia
  • Ernst & Young Pvt. Ltd.
  • Wilmar Investment Holdings
  • IEA Clean Coal Centre - UK
  • Mitra SK Pvt Ltd - India
  • PetroVietnam
  • Siam City Cement - Thailand
  • International Coal Ventures Pvt Ltd - India
  • The State Trading Corporation of India Ltd
  • Toyota Tsusho Corporation, Japan
  • Coal India Limited
  • RBS Sempra - UK
  • Samsung - South Korea
  • Merrill Lynch Commodities Europe
  • Africa Commodities Group - South Africa
  • Thai Mozambique Logistica
  • Surastha Cement
  • Mitsui
  • Kobe Steel Ltd - Japan
  • Vizag Seaport Private Limited - India
  • Orica Australia Pty. Ltd.
  • ANZ Bank - Australia
  • Straits Asia Resources Limited - Singapore
  • Maybank - Singapore
  • Sical Logistics Limited - India
  • Dr Ramakrishna Prasad Power Pvt Ltd - India
  • Mercuria Energy - Indonesia
  • Cement Manufacturers Association - India
  • Commonwealth Bank - Australia
  • MS Steel International - UAE
  • Total Coal South Africa
  • LBH Netherlands Bv - Netherlands
  • Barasentosa Lestari - Indonesia
  • Independent Power Producers Association of India
  • Energy Link Ltd, New Zealand
  • Shree Cement - India
  • Arutmin Indonesia
  • EMO - The Netherlands
  • Romanian Commodities Exchange
  • Moodys - Singapore
  • CCIC - Indonesia
  • Barclays Capital - USA
  • UBS Singapore
  • VISA Power Limited - India
  • Timah Investasi Mineral - Indoneisa
  • Australian Commodity Traders Exchange
  • Bangkok Bank PCL
  • TeaM Sual Corporation - Philippines
  • Bukit Asam (Persero) Tbk - Indonesia
  • Lanco Infratech Ltd - India
  • Inspectorate - India
  • Indorama - Singapore
  • Minerals Council of Australia
  • ING Bank NV - Singapore
  • White Energy Company Limited
  • Indian Oil Corporation Limited
  • Metalloyd Limited - United Kingdom
  • Oldendorff Carriers - Singapore
  • Vitol - Bahrain
  • World Coal - UK
  • Sinarmas Energy and Mining - Indonesia
  • Bahari Cakrawala Sebuku - Indonesia
  • Rashtriya Ispat Nigam Limited - India
  • McConnell Dowell - Australia
  • Pendopo Energi Batubara - Indonesia
  • PLN - Indonesia
  • Ceylon Electricity Board - Sri Lanka
  • Ministry of Mines - Canada
  • Aboitiz Power Corporation - Philippines
  • Platts
  • Manunggal Multi Energi - Indonesia
  • Jorong Barutama Greston.PT - Indonesia
  • Bhoruka Overseas - Indonesia
  • The India Cements Ltd
  • Riau Bara Harum - Indonesia
  • Thermax Limited - India
  • Miang Besar Coal Terminal - Indonesia
  • Japan Coal Energy Center
  • Adani Power Ltd - India
  • Bukit Baiduri Energy - Indonesia
  • Georgia Ports Authority, United States
  • GVK Power & Infra Limited - India
  • Kumho Petrochemical, South Korea
  • SASOL - South Africa
  • TANGEDCO India
  • Mintek Dendrill Indonesia
  • Platou - Singapore
  • Deloitte Consulting - India
  • Cargill India Pvt Ltd
  • Essar Steel Hazira Ltd - India
  • Rio Tinto Coal - Australia
  • Vale Mozambique
  • CNBM International Corporation - China
  • Sree Jayajothi Cements Limited - India
  • Trasteel International SA, Italy
  • Larsen & Toubro Limited - India
  • OCBC - Singapore
  • Adaro Indonesia
  • OPG Power Generation Pvt Ltd - India
  • Bangladesh Power Developement Board
  • GAC Shipping (India) Pvt Ltd
  • Bank of Tokyo Mitsubishi UFJ Ltd
  • Vedanta Resources Plc - India
  • The Treasury - Australian Government
  • Deutsche Bank - India
  • Argus Media - Singapore
  • Gresik Semen - Indonesia
  • Madhucon Powers Ltd - India
  • GB Group - China
  • Grasim Industreis Ltd - India
  • New Zealand Coal & Carbon
  • Goldman Sachs - Singapore
  • Ince & co LLP
  • TNPL - India
  • Coal and Oil Company - UAE
  • Indo Tambangraya Megah - Indonesia
  • ACC Limited - India
  • Directorate General of MIneral and Coal - Indonesia
  • bp singapore
  • BNP Paribas - Singapore
  • Renaissance Capital - South Africa
  • Humpuss - Indonesia
  • Maharashtra Electricity Regulatory Commission - India
  • Asmin Koalindo Tuhup - Indonesia
  • Edison Trading Spa - Italy
  • Pinang Coal Indonesia
  • Cardiff University - UK
  • Asian Development Bank
  • Directorate Of Revenue Intelligence - India
  • Bukit Makmur.PT - Indonesia
  • Kohat Cement Company Ltd. - Pakistan
  • Neyveli Lignite Corporation Ltd, - India
  • JPMorgan - India
  • Bharathi Cement Corporation - India
  • Savvy Resources Ltd - HongKong
  • Gujarat Sidhee Cement - India
  • Noble Europe Ltd - UK
  • Tanito Harum - Indonesia
  • Sakthi Sugars Limited - India
  • Sojitz Corporation - Japan
  • Freeport Indonesia
  • Port Waratah Coal Services - Australia
  • Jindal Steel & Power Ltd - India
  • Singapore Mercantile Exchange
  • Mechel - Russia
  • Kobexindo Tractors - Indoneisa
  • Credit Suisse - India
  • Berau Coal - Indonesia
  • European Bulk Services B.V. - Netherlands
  • Coaltrans Conferences
  • NTPC Limited - India
  • Kapuas Tunggal Persada - Indonesia
  • Indonesia Power. PT
  • Asia Cement - Taiwan
  • GNFC Limited - India
  • Indogreen Group - Indonesia
  • Petrochimia International Co. Ltd.- Taiwan
  • Bank of China, Malaysia
  • NALCO India
  • Sindya Power Generating Company Private Ltd
  • Coalindo Energy - Indonesia
  • Cosco
  • Dong Bac Coal Mineral Investment Coporation - Vietnam
  • Maruti Cements - India
  • Simpson Spence & Young - Indonesia
  • Meenaskhi Energy Private Limited - India
  • PLN Batubara - Indonesia
  • Makarim & Taira - Indonesia
  • Inco-Indonesia
  • Dalmia Cement Bharat India
  • Tata Chemicals Ltd - India
  • Krishnapatnam Port Company Ltd. - India
  • Mercator Lines Limited - India
  • Coal Orbis AG
  • JPower - Japan
  • SMG Consultants - Indonesia
  • Xstrata Coal
  • PNOC Exploration Corporation - Philippines
  • Altura Mining Limited, Indonesia
  • Indian School of Mines
  • KPCL - India
  • Ministry of Transport, Egypt
  • India Bulls Power Limited - India
  • Orica Mining Services - Indonesia
  • Britmindo - Indonesia
  • GHCL Limited - India
  • MEC Coal - Indonesia
  • Attock Cement Pakistan Limited
  • BRS Brokers - Singapore
  • Ambuja Cements Ltd - India
  • Anglo American - United Kingdom
  • Indonesian Coal Mining Association
  • Star Paper Mills Limited - India
  • Medco Energi Mining Internasional
  • The University of Queensland
  • Kideco Jaya Agung - Indonesia
  • Panama Canal Authority
  • globalCOAL - UK
  • Indika Energy - Indonesia
  • SRK Consulting
  • Chamber of Mines of South Africa
  • CESC Limited - India
  • Tata Power - India
  • Arch Coal - USA
  • Offshore Bulk Terminal Pte Ltd, Singapore
  • Marubeni Corporation - India
  • Gujarat Electricity Regulatory Commission - India
  • Siam City Cement PLC, Thailand
  • London Commodity Brokers - England
  • U S Energy Resources
  • Vijayanagar Sugar Pvt Ltd - India
  • Maheswari Brothers Coal Limited - India
  • Borneo Indobara - Indonesia
  • Wood Mackenzie - Singapore
  • Cemex - Philippines
  • Banpu Public Company Limited - Thailand
  • Thailand Anthracite
  • KOWEPO - South Korea
  • Maersk Broker
  • Formosa Plastics Group - Taiwan
  • Agrawal Coal Company - India
  • Kartika Selabumi Mining - Indonesia
  • Bayan Resources Tbk. - Indonesia
  • Idemitsu - Japan
  • Coastal Gujarat Power Limited - India
  • Xindia Steels Limited - India
  • Core Mineral Indonesia
  • DBS Bank - Singapore
  • Antam Resourcindo - Indonesia
  • Shenhua Group - China
  • HSBC - Hong Kong
  • Chettinad Cement Corporation Ltd - India
  • Thriveni
  • Standard Chartered Bank - UAE
  • Clarksons - UK
  • South Luzon Thermal Energy Corporation
  • Bhushan Steel Limited - India
  • UOB Asia (HK) Ltd
  • Economic Council, Georgia
  • IBC Asia (S) Pte Ltd
  • World Bank
  • Interocean Group of Companies - India
  • Enel Italy
  • Filglen & Citicon Mining (HK) Ltd - Hong Kong
  • Karbindo Abesyapradhi - Indoneisa