COALspot.com keeps you connected across the coal world
  • MINERS WELCOME INDONESIA'S NEW JOBS BILL THAT COULD SPUR COAL GROWTH - REUTERS
  • FEB 2020 INDONESIAN COAL PRICE REFERENCE FOR EXPORTS AND DOMESTIC BUYERS INCLUDING POWER PRODUCERS FIXED AT US$ 66.89 A TON

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, 15 February 20
U.S. COAL PRODUCTION WILL TOTAL 595 MMST IN 2020, DOWN 14% FROM 2019 - EIA
EIA forecasts that U.S. coal production will total 595 million short tons (MMst) in 2020, down 95 MMst (14%) from 2019.    Lower ...


Friday, 14 February 20
WHY THE WORLD ECONOMY WILL BE FACING CHINA'S CORONAVIRUS FOR A LONG TIME - CNBC
Everywhere we look we see the headlines and commentators talking about the coronavirus and its impact on tourism, trade and investment between Chin ...


Friday, 14 February 20
KOWEPO INVITED BIDS FOR 1.275 MILLION TONS OF MIN. 5,600 NCV COAL
COALspot.com: Korea Western Power Co. Ltd (KOWEPO). as a representative of five Korean Gencos has issued an international tender for total 1,275,00 ...


Friday, 14 February 20
IS THE US COAL INDUSTRY COMPLETELY BURNED OUT? -FORBES
This is the fourth of a multi-part series on the state of the main sources of energy in the US and how they compare globally. The series will cover ...


Friday, 14 February 20
FITCH RTGS: GLOBAL PORTS VULNERABLE TO CORONAVIRUS - RELATED VOLUME DECLINES
Global ports will see reduced trade volumes as a result of the coronavirus, COVID-19, which would become more severe should Chinese production take ...


   2 3 4 5 6   
Showing 16 to 20 news of total 5752
News by Category
Popular News
 
Total Members : 26,760
Member
Panelist
User ID
Password
Remember Me
By logging on you accept our TERMS OF USE.
Free
Register
Forgot Password
 
Our Members Are From ...

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