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

Wednesday, 18 May 22
INDONESIAN COAL PRICE REFERENCE DROPPED 4.42% IN MAY Indonesian Coal Price Reference for May delivery drops 4.42 per cent month on month.   The Indonesian Coal Price Referen ...

Thursday, 12 May 22
Almost through half of the year, the overall shipping market continues to show signs of healthiness, after plenty of festivities and holidays that ...

Wednesday, 27 April 22
In 2021, the European Union (27) was the third largest seaborne importer of LNG in the world, with a 15.8% share.   It followed Mainla ...

Tuesday, 26 April 22
Bauxite shipments arriving in China hit new record levels in the first quarter of 2022 and grew at an average annual rate of 12.8% between 2017 and ...

Tuesday, 26 April 22
India’s coal imports are starting to reflect shifting world trade and pricing dynamics in the wake of Russia’s invasion of neighbouring ...

   1 2 3 4 5   
Showing 1 to 5 news of total 6547
News by Category
Popular News
Total Members : 27,808
User ID
Remember Me
By logging on you accept our TERMS OF USE.
Forgot Password
Our Members Are From ...

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