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.
|
|
Friday, 17 September 10
CWP COAL WASHING PLANTS MACHINERY LANDS ON RUSSIAN MARKET!!
Press Release: CWP Coal Washing Plants Machinery Industry & Trade Co. which was founded in 1990, has been operating in Izmir with its closed pro ...
Friday, 17 September 10
FREIGHT RATES TO DECLINE FURTHER - ICICI SEC
Broking firm ICICI Securities said tanker freight rates reported a sharp drop with rates of Suezmax and Aframax carriers declining by 16% to USD 8,6 ...
Friday, 17 September 10
R-POWER, ADANI, GMR TO BID FOR $1-BN MINE
Reliance Power, Adani Power and GMR are in the race for a coal mine asset in Australia. The valuation of the asset is close to $1 billion (Rs 4,600 ...
Thursday, 16 September 10
RPG GROUP BUYS 10% IN AUSSIE COAL FIRM RESOURCE GENERATION
Dealcurry reported that, India's RPG Group's Integrated Coal Mining Limited (ICML) has acquired 10% stake (18,268,053 shares) in Resource Generati ...
Wednesday, 15 September 10
VIETNAM TO IMPORT UP TO 15 MLN TONS COAL/YR BY 2015 - VIETNAM BUSINESS
Vietnam Business reported that, Vietnam will need to import 3 million to 15 million tons of coal a year by 2015, rising to 21 million to 40 million ...
|
|
|
Showing 5606 to 5610 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Bulk Trading Sa - Switzerland
- Karaikal Port Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Ceylon Electricity Board - Sri Lanka
- Bharathi Cement Corporation - India
- Indian Energy Exchange, India
- OPG Power Generation Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Bangladesh Power Developement Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhushan Steel Limited - India
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- India Bulls Power Limited - India
- Wilmar Investment Holdings
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- PowerSource Philippines DevCo
- Bhatia International Limited - India
- Commonwealth Bank - Australia
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- Meenaskhi Energy Private Limited - India
- Jaiprakash Power Ventures ltd
- The Treasury - Australian Government
- Trasteel International SA, Italy
- Ambuja Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- Sree Jayajothi Cements Limited - India
- Binh Thuan Hamico - Vietnam
- Eastern Coal Council - USA
- ICICI Bank Limited - India
- Minerals Council of Australia
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- The University of Queensland
- New Zealand Coal & Carbon
- Merrill Lynch Commodities Europe
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- LBH Netherlands Bv - Netherlands
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Georgia Ports Authority, United States
- Coastal Gujarat Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- Coal and Oil Company - UAE
- Independent Power Producers Association of India
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Aditya Birla Group - India
- McConnell Dowell - Australia
- Directorate General of MIneral and Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mjunction Services Limited - India
- Anglo American - United Kingdom
- Videocon Industries ltd - India
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- Borneo Indobara - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- GVK Power & Infra Limited - India
- GMR Energy Limited - India
- Altura Mining Limited, Indonesia
- Deloitte Consulting - India
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Energy Link Ltd, New Zealand
- Romanian Commodities Exchange
- Economic Council, Georgia
- Central Java Power - Indonesia
- Edison Trading Spa - Italy
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Heidelberg Cement - Germany
- Mintek Dendrill Indonesia
- Indika Energy - Indonesia
- Riau Bara Harum - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Port Waratah Coal Services - Australia
- Pendopo Energi Batubara - Indonesia
- Gujarat Sidhee Cement - India
- IEA Clean Coal Centre - UK
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Kartika Selabumi Mining - Indonesia
- Antam Resourcindo - Indonesia
- Meralco Power Generation, Philippines
- Thiess Contractors Indonesia
- Madhucon Powers Ltd - India
- Aboitiz Power Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- Price Waterhouse Coopers - Russia
- Parliament of New Zealand
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Sarangani Energy Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Samtan Co., Ltd - South Korea
- Semirara Mining and Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Simpson Spence & Young - Indonesia
- Alfred C Toepfer International GmbH - Germany
- SMC Global Power, Philippines
- Planning Commission, India
- PNOC Exploration Corporation - Philippines
- Ministry of Finance - Indonesia
- Ministry of Mines - Canada
- Interocean Group of Companies - India
- Vedanta Resources Plc - India
- Banpu Public Company Limited - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- Globalindo Alam Lestari - Indonesia
- Renaissance Capital - South Africa
- Global Coal Blending Company Limited - Australia
- Kumho Petrochemical, South Korea
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Kaltim Prima Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- Savvy Resources Ltd - HongKong
- Offshore Bulk Terminal Pte Ltd, Singapore
- Lanco Infratech Ltd - India
- Kepco SPC Power Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- AsiaOL BioFuels Corp., Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Orica Mining Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Orica Australia Pty. Ltd.
- Bhoruka Overseas - Indonesia
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Sindya Power Generating Company Private Ltd
- SN Aboitiz Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- San Jose City I Power Corp, Philippines
- Power Finance Corporation Ltd., India
- Indo Tambangraya Megah - Indonesia
- TeaM Sual Corporation - Philippines
- Coalindo Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Maheswari Brothers Coal Limited - India
- London Commodity Brokers - England
- Australian Coal Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- White Energy Company Limited
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Electricity Authority, New Zealand
- Chamber of Mines of South Africa
- MS Steel International - UAE
- Malabar Cements Ltd - India
- Standard Chartered Bank - UAE
- Asmin Koalindo Tuhup - Indonesia
- Formosa Plastics Group - Taiwan
- VISA Power Limited - India
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- Ind-Barath Power Infra Limited - India
- Gujarat Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Thai Mozambique Logistica
- Uttam Galva Steels Limited - India
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Iligan Light & Power Inc, Philippines
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Manunggal Multi Energi - Indonesia
- Posco Energy - South Korea
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Therma Luzon, Inc, Philippines
- Cement Manufacturers Association - India
- TNB Fuel Sdn Bhd - Malaysia
- Parry Sugars Refinery, India
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
|
| |
| |
|
