COALspot.com keeps you connected across the coal world
  • DEC 2019 INDONESIAN COAL PRICE REFERENCE FOR EXPORTS AND DOMESTIC BUYERS INCLUDING POWER PRODUCERS FIXED AT US$ 66.30 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

Saturday, 07 December 19
SOUTH AFRICAN COAL PRICE SURGE, WHILE OTHERS LANGUISH, IS TROUBLING - REUTERS
Coal prices around the world are gently sliding as demand from top importers such as China, India and even Europe remains subdued amid a so far mil ...


Saturday, 07 December 19
SUPRAMAX: OVERALL, THE BALTIC SUPRAMAX INDEX REMAINED IN POSITIVE MODE, DESPITE SOME AREAS LACKING FRESH ACTIVITY - BALTIC BRIEFING
Capesize This week the Capesize market maintained healthy earnings, as an end of year surge took the Capesize 5TC back up to $25,202 by mid-wee ...


Friday, 06 December 19
INDONESIA COAL BENCHMARK PRICE FOR DECEMBER INCREASES BY US 3 CENTS MOM
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...


Thursday, 05 December 19
IMO 2020 IS ABOUT TO GET REAL - GAVIN THOMPSON
As I write this edition of the APAC Energy Buzz from my desk in Singapore I can see ships. Lots of ships. No surprise given that Singapore is among ...


Wednesday, 04 December 19
FITCH RATINGS: CASH FLOW GENERATION TO SLOW DOWN FOR INDONESIAN COAL MINERS
Fitch Ratings' negative outlook on the Indonesian coal-mining sector reflects our view of weaker cash flow generation on account of declining c ...


   1 2 3 4 5   
Showing 6 to 10 news of total 5624
News by Category
Popular News
 
Total Members : 26,661
Member
Panelist
User ID
Password
Remember Me
By logging on you accept our TERMS OF USE.
Free
Register
Forgot Password
 
Our Members Are From ...

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