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

Friday, 17 May 19
China’s benchmark power coal price remained flat during the past week.   The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...

Thursday, 16 May 19
Capesize This volatile segment is trying to find a clear direction from the present US$ 12,000/day earnings for standard units says Fearnleys W ...

Wednesday, 15 May 19
Modern warfare - Trade wars & sanctions As of May 1st, the U.S. has ended waivers to the sanctions that had allowed the top buyers of Irani ...

Monday, 13 May 19
INDONESIAN COAL PRICE REFERENCE CONTINUES TO FALL The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...

Monday, 13 May 19
Cape The market continued its rollercoaster ride last week opening with negative sentiment, but turning around in dramatic fashion by the week& ...

   3 4 5 6 7   
Showing 21 to 25 news of total 5490
News by Category
Popular News
Total Members : 26,248
User ID
Remember Me
By logging on you accept our TERMS OF USE.
Forgot Password
Our Members Are From ...

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