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, 10 June 10
R-POWER, INDONESIA'S SUGICO INK PACT TO ACQUIRE COAL MINES - ECONOMIC TIMES
Economic Times of India reported that, Anil Ambani-owned Reliance Power has signed a share-sale agreement with Indonesia’s Sugico Group to acq ...
Thursday, 10 June 10
PARAMOUNT MINING CORPORATION REPORTS KEY INDONESIAN JV AGREEMENT
Indonesia focussed Paramount Mining Corporation has reported that its Indonesian subsidiary, PT Paramindo, has concluded a Joint Venture Agreem ...
Wednesday, 09 June 10
INDIA, CHINA TO PROP UP THERMAL COAL DEMAND - COMMODITY ONLINE
Commodity Online : Weakness in thermal coal demand in OECD will continue to be offset by growth in demand in India and China. Therefore, the s ...
Tuesday, 08 June 10
TATA POWER LOOKING TO PICK UP STAKE IN OVERSEAS COAL MINES - ECONOMIC TIMES
Economic Times reported that, Tata Power is looking for a strategic stake purchase in coal mines of Indonesia or South Africa to fuel its upcoming 1 ...
Tuesday, 08 June 10
RUSSIA REPORTED A TENFOLD GROWTH IN COAL EXPORTS TO CHINA IN 1Q 2010 - BRS
A retreat for all the dry bulk segments this week, but especially for the Panamax and Supramax markets. The Panamax 4TC remains over US$30,000/day h ...
|
|
|
Showing 5786 to 5790 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Marubeni Corporation - India
- Chettinad Cement Corporation Ltd - India
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Coalindo Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement PLC, Thailand
- Gujarat Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Interocean Group of Companies - India
- Holcim Trading Pte Ltd - Singapore
- Australian Coal Association
- Barasentosa Lestari - Indonesia
- Uttam Galva Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Commonwealth Bank - Australia
- Therma Luzon, Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- Bhatia International Limited - India
- Economic Council, Georgia
- Chamber of Mines of South Africa
- Port Waratah Coal Services - Australia
- Kobexindo Tractors - Indoneisa
- PowerSource Philippines DevCo
- Ambuja Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- GMR Energy Limited - India
- Bhoruka Overseas - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Aditya Birla Group - India
- Indonesian Coal Mining Association
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- Eastern Coal Council - USA
- Indian Oil Corporation Limited
- Bukit Makmur.PT - Indonesia
- Sical Logistics Limited - India
- VISA Power Limited - India
- Tamil Nadu electricity Board
- Antam Resourcindo - Indonesia
- Indogreen Group - Indonesia
- IEA Clean Coal Centre - UK
- Siam City Cement - Thailand
- New Zealand Coal & Carbon
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- GVK Power & Infra Limited - India
- Edison Trading Spa - Italy
- Meenaskhi Energy Private Limited - India
- The Treasury - Australian Government
- Ministry of Mines - Canada
- Karbindo Abesyapradhi - Indoneisa
- LBH Netherlands Bv - Netherlands
- Indika Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Jaiprakash Power Ventures ltd
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- Thiess Contractors Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Maheswari Brothers Coal Limited - India
- Wilmar Investment Holdings
- Kohat Cement Company Ltd. - Pakistan
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Romanian Commodities Exchange
- Georgia Ports Authority, United States
- Vedanta Resources Plc - India
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- Gujarat Sidhee Cement - India
- Attock Cement Pakistan Limited
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bharathi Cement Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Posco Energy - South Korea
- Cement Manufacturers Association - India
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- Semirara Mining Corp, Philippines
- Star Paper Mills Limited - India
- PTC India Limited - India
- Samtan Co., Ltd - South Korea
- Dalmia Cement Bharat India
- Salva Resources Pvt Ltd - India
- Wood Mackenzie - Singapore
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Heidelberg Cement - Germany
- TeaM Sual Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- CNBM International Corporation - China
- Makarim & Taira - Indonesia
- Carbofer General Trading SA - India
- Krishnapatnam Port Company Ltd. - India
- Orica Mining Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Trasteel International SA, Italy
- The State Trading Corporation of India Ltd
- London Commodity Brokers - England
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Central Electricity Authority - India
- Bayan Resources Tbk. - Indonesia
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Sree Jayajothi Cements Limited - India
- Central Java Power - Indonesia
- Global Coal Blending Company Limited - Australia
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- McConnell Dowell - Australia
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- GAC Shipping (India) Pvt Ltd
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Madhucon Powers Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Coal and Oil Company - UAE
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- Baramulti Group, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- Coastal Gujarat Power Limited - India
- Straits Asia Resources Limited - Singapore
- Global Green Power PLC Corporation, Philippines
- Agrawal Coal Company - India
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Medco Energi Mining Internasional
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Electricity Authority, New Zealand
- Minerals Council of Australia
- Altura Mining Limited, Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Energy Development Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Thai Mozambique Logistica
- SMG Consultants - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- SMC Global Power, Philippines
- ICICI Bank Limited - India
- Grasim Industreis Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Standard Chartered Bank - UAE
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Anglo American - United Kingdom
- Meralco Power Generation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Metalloyd Limited - United Kingdom
- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Timah Investasi Mineral - Indoneisa
|
| |
| |
|
