keeps you connected across the coal world

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

Analyst : Sunil K Kumbhat - 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).

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.

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

Tuesday, 31 March 20
China Taiyuan coal transaction price index stood at 132.17 points Monday, down 0.43 percent week on week.   The index, released by Chi ...

Tuesday, 31 March 20
The impact of coronavirus has prompted a surge in coal-fired power plant construction permits in China, with the Chinese government issuing more pe ...

Monday, 30 March 20
KNOWLEDGE TO ELEVATE Countries around the world are strengthening their border control measures in order to prevent the further spread of COVI ...

Monday, 30 March 20
KNOWLEDGE TO ELEVATE The COVID-19 pandemic has affected the maritime industry in previously unthinkable ways. Ports around the world are denyi ...

Monday, 30 March 20
Capesize As Covid-19 continued to ratchet up tensions across the globe, the Cape market dealt with the change to remote working. Most regions o ...

   1 2 3 4 5   
Showing 6 to 10 news of total 5840
News by Category
Popular News
Total Members : 26,838
User ID
Remember Me
By logging on you accept our TERMS OF USE.
Forgot Password
Our Members Are From ...

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