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.
|
|
Thursday, 08 July 10
DRY BULK MARKET STILL PLUNGING, NOW STANDING AT 14 MONTH LOWS
The dry bulk shipping market’s demise isn’t over yet, as the industry’s main benchmark, the Baltic Dry Index (BDI) has been on a f ...
Wednesday, 07 July 10
MACQUARIE SEES CHINA COMMODITIES PRICE FALLS AND CUTBACKS AHEAD - MINEWEB
MineWeb reported that, The research arm of Australia's Macquarie Bank - one of the most reliable of China watchers - in its latest briefing on Chin ...
Wednesday, 07 July 10
COAL PRICES ON THE RISE
Caixin online reported that, China's domestic coal prices have seen a 26.2 percent year-on-year rise in May. Meanwhile, the volume of coal im ...
Tuesday, 06 July 10
INCREASE IN DRY BULK SPOT FIXTURES UNABLE TO BOOST RATES, LOSING STREAK CONTINUES
Yet another week began on a negative note for the dry bulk shipping market, with the Baltic Dry Index posting its 28th straight losing daily session ...
Tuesday, 06 July 10
KEPCO, POSCO BUY AUSTRALIAN COAL MINES - CHOSUN
Chosun reported that, Electricity monopoly KEPCO and steelmaker POSCO have both bought coal mines in Australia.
KEPCO signed a 400 million Austra ...
|
|
|
Showing 5736 to 5740 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Semirara Mining Corp, Philippines
- Indogreen Group - Indonesia
- Australian Commodity Traders Exchange
- Wood Mackenzie - Singapore
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- GMR Energy Limited - India
- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- PowerSource Philippines DevCo
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- Mjunction Services Limited - India
- Agrawal Coal Company - India
- PTC India Limited - India
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Lanco Infratech Ltd - India
- Bhatia International Limited - India
- Bukit Makmur.PT - Indonesia
- Petron Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Cement Manufacturers Association - India
- IHS Mccloskey Coal Group - USA
- McConnell Dowell - Australia
- Altura Mining Limited, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pendopo Energi Batubara - Indonesia
- Indonesian Coal Mining Association
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Formosa Plastics Group - Taiwan
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Latin American Coal - Colombia
- Minerals Council of Australia
- The State Trading Corporation of India Ltd
- Siam City Cement - Thailand
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- Gujarat Sidhee Cement - India
- Thai Mozambique Logistica
- Baramulti Group, Indonesia
- ASAPP Information Group - India
- Vedanta Resources Plc - India
- SMC Global Power, Philippines
- Mercuria Energy - Indonesia
- Central Java Power - Indonesia
- Central Electricity Authority - India
- Toyota Tsusho Corporation, Japan
- Banpu Public Company Limited - Thailand
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Power Finance Corporation Ltd., India
- GN Power Mariveles Coal Plant, Philippines
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- LBH Netherlands Bv - Netherlands
- Independent Power Producers Association of India
- Asmin Koalindo Tuhup - Indonesia
- Bangladesh Power Developement Board
- Price Waterhouse Coopers - Russia
- Anglo American - United Kingdom
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Heidelberg Cement - Germany
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Ministry of Mines - Canada
- Maheswari Brothers Coal Limited - India
- Vizag Seaport Private Limited - India
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- Deloitte Consulting - India
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Sakthi Sugars Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement PLC, Thailand
- Coastal Gujarat Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Carbofer General Trading SA - India
- Merrill Lynch Commodities Europe
- Posco Energy - South Korea
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Antam Resourcindo - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- Orica Australia Pty. Ltd.
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Global Green Power PLC Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Uttam Galva Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Mercator Lines Limited - India
- Ministry of Finance - Indonesia
- Planning Commission, India
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- CNBM International Corporation - China
- Edison Trading Spa - Italy
- Indian Energy Exchange, India
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- Intertek Mineral Services - Indonesia
- Malabar Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Jaiprakash Power Ventures ltd
- India Bulls Power Limited - India
- Xindia Steels Limited - India
- Sindya Power Generating Company Private Ltd
- Meenaskhi Energy Private Limited - India
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- ICICI Bank Limited - India
- Rio Tinto Coal - Australia
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- Karbindo Abesyapradhi - Indoneisa
- Directorate Of Revenue Intelligence - India
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- Makarim & Taira - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Timah Investasi Mineral - Indoneisa
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Globalindo Alam Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Kartika Selabumi Mining - Indonesia
- Star Paper Mills Limited - India
- Energy Link Ltd, New Zealand
- TeaM Sual Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- International Coal Ventures Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Renaissance Capital - South Africa
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- Global Coal Blending Company Limited - Australia
- White Energy Company Limited
- PNOC Exploration Corporation - Philippines
- MS Steel International - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Africa Commodities Group - South Africa
- Georgia Ports Authority, United States
- Oldendorff Carriers - Singapore
- Bayan Resources Tbk. - Indonesia
- Kaltim Prima Coal - Indonesia
- Larsen & Toubro Limited - India
- Grasim Industreis Ltd - India
- Aboitiz Power Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Manunggal Multi Energi - Indonesia
- Tamil Nadu electricity Board
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Trasteel International SA, Italy
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Australian Coal Association
|
| |
| |
|
