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.
|
|
Saturday, 10 April 10
VESSELS OPEN N. CHINA WERE SEEN FIXED AT HIGH TEENS FOR TRIP VIA INDONESIA TO INDIA - VISTAAR SINGAPORE
COALspot.com: The BDI indices was almost at same levels was down by only 2.6 pct.
The cape index was down by almost 13 pct, which appears to be s ...
Saturday, 10 April 10
KRISHNAPATNAM PORT GROWS BY ALMOST 100% IN ITS SECOND YEAR OF OPERATIONS
COALspot.com ( Press Release): It has been a year of setting numerous records for Krishnapatnam Port. Krishnapatnam Port is only in its second year ...
Saturday, 10 April 10
TRANS-ASIA SEEKS SEMIRARA, INDO SUPPLIERS FOR COAL POWER PLANT - MANILA STANDARD TODAY
Manila Standard Today reported that, Trans-Asia Oil & Energy Development Corp., a unit of the Phinma Group, will tap Semirara Mining Corp. ...
Thursday, 08 April 10
THE FAR EAST SHIPPING MARKET FIRMING SINCE THE LAST WEEK
Handy
Little fresh interest early this week after the holidays. The BSI saw yest ...
Thursday, 08 April 10
INDONESIAN ENERGY MINISTRY SEEKS LONGER MINING CONTRACTS - THE JAKARTAGLOBE
The Jakarta Globe reported that, Energy Minister Darwin Zahedy Saleh said he would seek to amend the mining law to address investors’ complain ...
|
|
|
Showing 5891 to 5895 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Sindya Power Generating Company Private Ltd
- Interocean Group of Companies - India
- Meralco Power Generation, Philippines
- Ambuja Cements Ltd - India
- Ministry of Finance - Indonesia
- GMR Energy Limited - India
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- Mintek Dendrill Indonesia
- Maheswari Brothers Coal Limited - India
- Orica Australia Pty. Ltd.
- Xindia Steels Limited - India
- Semirara Mining Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Edison Trading Spa - Italy
- Asmin Koalindo Tuhup - Indonesia
- Essar Steel Hazira Ltd - India
- Posco Energy - South Korea
- CIMB Investment Bank - Malaysia
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- Mercuria Energy - Indonesia
- Energy Development Corp, Philippines
- Siam City Cement - Thailand
- Attock Cement Pakistan Limited
- Billiton Holdings Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- SMG Consultants - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bukit Makmur.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Miang Besar Coal Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- Cement Manufacturers Association - India
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Maharashtra Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- GVK Power & Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
- Renaissance Capital - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Madhucon Powers Ltd - India
- Antam Resourcindo - Indonesia
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- The State Trading Corporation of India Ltd
- Standard Chartered Bank - UAE
- AsiaOL BioFuels Corp., Philippines
- Globalindo Alam Lestari - Indonesia
- Central Java Power - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Tamil Nadu electricity Board
- Minerals Council of Australia
- Karbindo Abesyapradhi - Indoneisa
- The University of Queensland
- LBH Netherlands Bv - Netherlands
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Port Waratah Coal Services - Australia
- Sojitz Corporation - Japan
- Indika Energy - Indonesia
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Australian Commodity Traders Exchange
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- Orica Mining Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Mjunction Services Limited - India
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- San Jose City I Power Corp, Philippines
- Chamber of Mines of South Africa
- Economic Council, Georgia
- Africa Commodities Group - South Africa
- Riau Bara Harum - Indonesia
- South Luzon Thermal Energy Corporation
- Directorate General of MIneral and Coal - Indonesia
- Price Waterhouse Coopers - Russia
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- Dalmia Cement Bharat India
- Indian Oil Corporation Limited
- Therma Luzon, Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Timah Investasi Mineral - Indoneisa
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Aditya Birla Group - India
- VISA Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Goldman Sachs - Singapore
- Rio Tinto Coal - Australia
- India Bulls Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- London Commodity Brokers - England
- Bukit Asam (Persero) Tbk - Indonesia
- Samtan Co., Ltd - South Korea
- Jindal Steel & Power Ltd - India
- Planning Commission, India
- CNBM International Corporation - China
- Altura Mining Limited, Indonesia
- Parry Sugars Refinery, India
- SN Aboitiz Power Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Wilmar Investment Holdings
- Bhatia International Limited - India
- Metalloyd Limited - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Manunggal Multi Energi - Indonesia
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- White Energy Company Limited
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Karaikal Port Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Indonesian Coal Mining Association
- Sarangani Energy Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- Coalindo Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Parliament of New Zealand
- Alfred C Toepfer International GmbH - Germany
- Agrawal Coal Company - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Commonwealth Bank - Australia
- Eastern Coal Council - USA
- Kalimantan Lumbung Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- PowerSource Philippines DevCo
- Kumho Petrochemical, South Korea
- Videocon Industries ltd - India
- Borneo Indobara - Indonesia
- Coal and Oil Company - UAE
- International Coal Ventures Pvt Ltd - India
- Makarim & Taira - Indonesia
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Kohat Cement Company Ltd. - Pakistan
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- Power Finance Corporation Ltd., India
- PetroVietnam Power Coal Import and Supply Company
- IHS Mccloskey Coal Group - USA
- Georgia Ports Authority, United States
- SMC Global Power, Philippines
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- Heidelberg Cement - Germany
- Energy Link Ltd, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Eastern Energy - Thailand
- Barasentosa Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Bangladesh Power Developement Board
- Central Electricity Authority - India
- Leighton Contractors Pty Ltd - Australia
- Baramulti Group, Indonesia
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Singapore Mercantile Exchange
- Uttam Galva Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- ASAPP Information Group - India
- Latin American Coal - Colombia
- Australian Coal Association
- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Jorong Barutama Greston.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- MS Steel International - UAE
- Sree Jayajothi Cements Limited - India
- The Treasury - Australian Government
- McConnell Dowell - Australia
|
| |
| |
|
