We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
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.
|
|
Wednesday, 27 April 11
KEWESPO CALLS FOR 765KT OF THERMAL COAL
COALspot.com - South Korea's East-West Power Co's (KEWESPO) has issued a tender to buy total 765,000 tonnes of thermal coal for delivery between J ...
Wednesday, 27 April 11
HARUM ENERGY TO PAY RP 659.1B IN DIVIDENDS - THE JAKARTA POST
The Jakarta Post reported that, Indonesian coal miner Harum Energy is planning to pay out Rp 659.1 billion (US$76.46 million) in dividends this year ...
Wednesday, 27 April 11
TSIS $5 MILLION PLANT TO START PRODUCING UPGRADED COAL - THE JAKARTA POST
The Jakartapost reported that, PT Total Sinergy International (TSI), in association with Agritrade Resources Limited of Hong Kong, will upgrade its ...
Wednesday, 27 April 11
RAIN CONSIDERS COAL MINES TAKEOVER - INSIDER STORIES
Indonesian's tenth largest coal miner in term of coal concession, PT Resource Alam Indonesia Tbk (KKGI), is considering to acquire several coalmine ...
Wednesday, 27 April 11
DRY BULK MARKET LACKS ACTIVITY, RATES KEEP RETREATING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the Easter Holidays for a large of the world now behind, the dry bulk market kept lacking activity on Tuesday, which led the Baltic Dry Index ( ...
|
|
|
Showing 5286 to 5290 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Bharathi Cement Corporation - India
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Central Java Power - Indonesia
- Mercuria Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- MS Steel International - UAE
- Sree Jayajothi Cements Limited - India
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Georgia Ports Authority, United States
- Bukit Asam (Persero) Tbk - Indonesia
- Agrawal Coal Company - India
- OPG Power Generation Pvt Ltd - India
- Ministry of Mines - Canada
- Siam City Cement PLC, Thailand
- Chettinad Cement Corporation Ltd - India
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Africa Commodities Group - South Africa
- Wood Mackenzie - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- Sinarmas Energy and Mining - Indonesia
- PowerSource Philippines DevCo
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Bahari Cakrawala Sebuku - Indonesia
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Economic Council, Georgia
- Global Green Power PLC Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- Global Coal Blending Company Limited - Australia
- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
- Planning Commission, India
- Heidelberg Cement - Germany
- Miang Besar Coal Terminal - Indonesia
- Antam Resourcindo - Indonesia
- Merrill Lynch Commodities Europe
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indika Energy - Indonesia
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Bulk Trading Sa - Switzerland
- Mercator Lines Limited - India
- Lanco Infratech Ltd - India
- Petron Corporation, Philippines
- PTC India Limited - India
- Alfred C Toepfer International GmbH - Germany
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Orica Mining Services - Indonesia
- Sojitz Corporation - Japan
- Holcim Trading Pte Ltd - Singapore
- Indonesian Coal Mining Association
- Indian Energy Exchange, India
- Eastern Coal Council - USA
- Meenaskhi Energy Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Indo Tambangraya Megah - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Krishnapatnam Port Company Ltd. - India
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Thai Mozambique Logistica
- Tamil Nadu electricity Board
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- Globalindo Alam Lestari - Indonesia
- Standard Chartered Bank - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- LBH Netherlands Bv - Netherlands
- Altura Mining Limited, Indonesia
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Kideco Jaya Agung - Indonesia
- Bukit Makmur.PT - Indonesia
- Semirara Mining Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Grasim Industreis Ltd - India
- Goldman Sachs - Singapore
- Ceylon Electricity Board - Sri Lanka
- Wilmar Investment Holdings
- Pendopo Energi Batubara - Indonesia
- Attock Cement Pakistan Limited
- Energy Link Ltd, New Zealand
- Mjunction Services Limited - India
- Kapuas Tunggal Persada - Indonesia
- Romanian Commodities Exchange
- Indogreen Group - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhoruka Overseas - Indonesia
- Bukit Baiduri Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Sakthi Sugars Limited - India
- San Jose City I Power Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- White Energy Company Limited
- Neyveli Lignite Corporation Ltd, - India
- Parry Sugars Refinery, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Jaiprakash Power Ventures ltd
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Maheswari Brothers Coal Limited - India
- Ind-Barath Power Infra Limited - India
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Intertek Mineral Services - Indonesia
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- The Treasury - Australian Government
- Manunggal Multi Energi - Indonesia
- Savvy Resources Ltd - HongKong
- Energy Development Corp, Philippines
- London Commodity Brokers - England
- Price Waterhouse Coopers - Russia
- Port Waratah Coal Services - Australia
- Deloitte Consulting - India
- IEA Clean Coal Centre - UK
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- Therma Luzon, Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Posco Energy - South Korea
- Banpu Public Company Limited - Thailand
- Kartika Selabumi Mining - Indonesia
- Coal and Oil Company - UAE
- The State Trading Corporation of India Ltd
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Mintek Dendrill Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Global Business Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- International Coal Ventures Pvt Ltd - India
- Baramulti Group, Indonesia
- Singapore Mercantile Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Independent Power Producers Association of India
- Coalindo Energy - Indonesia
- The University of Queensland
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- AsiaOL BioFuels Corp., Philippines
- Interocean Group of Companies - India
- Pipit Mutiara Jaya. PT, Indonesia
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- New Zealand Coal & Carbon
- Uttam Galva Steels Limited - India
- Medco Energi Mining Internasional
- Bhushan Steel Limited - India
- CNBM International Corporation - China
- Kalimantan Lumbung Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Jindal Steel & Power Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Aboitiz Power Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Malabar Cements Ltd - India
- Bhatia International Limited - India
- ICICI Bank Limited - India
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Thiess Contractors Indonesia
- Binh Thuan Hamico - Vietnam
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Commonwealth Bank - Australia
- Carbofer General Trading SA - India
- Videocon Industries ltd - India
- Meralco Power Generation, Philippines
- Iligan Light & Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- VISA Power Limited - India
- European Bulk Services B.V. - Netherlands
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
|
| |
| |
|
