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.
|
|
Sunday, 07 March 10
SHIPS WERE FIXED AT AROUND US$ 16,000 PER DAY FOR TRIP VIA INDONESIA TO INDIA - CAPT. REDDY
COALspot.com: The freight market was quite buoyant this week and BDI was up by 18 pct . The Cape index up by 23.60 pct and Panamax index was up by 1 ...
Saturday, 06 March 10
ESSAR TO BUY US COAL FIRM FOR $550-600 MN
Business-Standard reported that, the Essar Group is close to buying Trinity Coal, one of the top 10 coal producers in the US, in a deal worth $550-6 ...
Friday, 05 March 10
KARNATAKA POWER SEEKS 900,000 TONS STEAMING COAL OVER 9 MONTHS
Bloomberg reported that, Karnataka Power Corp., an Indian electricity generator, is seeking to import 900,000 metric tons of steaming coal over nine ...
Friday, 05 March 10
COAL RALLY ON CHINESE DEMAND SPARKS $59 ESTIMATES
Bloomberg reportd that, A rally that has boosted coal prices 21 percent from their lows last year may have further to go as the coldest U.S. winter ...
Thursday, 04 March 10
BANPU KEEPS JORONG OUTPUT AT 2M TONNES
Bangkok Post reported that, Banpu Plc, Asean's largest coal miner, is maintaining an output target of 2 million tonnes this year from its Jorong mi ...
|
|
|
Showing 5956 to 5960 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Essar Steel Hazira Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Anglo American - United Kingdom
- VISA Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Sidhee Cement - India
- Bukit Makmur.PT - Indonesia
- ICICI Bank Limited - India
- Wilmar Investment Holdings
- Mercuria Energy - Indonesia
- Larsen & Toubro Limited - India
- London Commodity Brokers - England
- CIMB Investment Bank - Malaysia
- Karaikal Port Pvt Ltd - India
- Indogreen Group - Indonesia
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- Xindia Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Ind-Barath Power Infra Limited - India
- Latin American Coal - Colombia
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- India Bulls Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- Samtan Co., Ltd - South Korea
- Kalimantan Lumbung Energi - Indonesia
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- TeaM Sual Corporation - Philippines
- Africa Commodities Group - South Africa
- Globalindo Alam Lestari - Indonesia
- Energy Development Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Videocon Industries ltd - India
- Riau Bara Harum - Indonesia
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Ministry of Transport, Egypt
- Orica Mining Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- Baramulti Group, Indonesia
- IEA Clean Coal Centre - UK
- Metalloyd Limited - United Kingdom
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Heidelberg Cement - Germany
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Electricity Generating Authority of Thailand
- Medco Energi Mining Internasional
- South Luzon Thermal Energy Corporation
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Central Java Power - Indonesia
- Bhoruka Overseas - Indonesia
- Maheswari Brothers Coal Limited - India
- Port Waratah Coal Services - Australia
- Oldendorff Carriers - Singapore
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Indika Energy - Indonesia
- Coalindo Energy - Indonesia
- PowerSource Philippines DevCo
- Binh Thuan Hamico - Vietnam
- Bhushan Steel Limited - India
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- Posco Energy - South Korea
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Gujarat Electricity Regulatory Commission - India
- Miang Besar Coal Terminal - Indonesia
- Ministry of Mines - Canada
- Billiton Holdings Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Meenaskhi Energy Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Agrawal Coal Company - India
- Uttam Galva Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- Grasim Industreis Ltd - India
- Marubeni Corporation - India
- Sree Jayajothi Cements Limited - India
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- Indonesian Coal Mining Association
- Chamber of Mines of South Africa
- Dalmia Cement Bharat India
- Siam City Cement PLC, Thailand
- Formosa Plastics Group - Taiwan
- Cigading International Bulk Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Deloitte Consulting - India
- Antam Resourcindo - Indonesia
- Sakthi Sugars Limited - India
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- ASAPP Information Group - India
- Borneo Indobara - Indonesia
- Madhucon Powers Ltd - India
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Indian Energy Exchange, India
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Parliament of New Zealand
- Ambuja Cements Ltd - India
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Semirara Mining and Power Corporation, Philippines
- Australian Coal Association
- Altura Mining Limited, Indonesia
- Vedanta Resources Plc - India
- MS Steel International - UAE
- Bukit Baiduri Energy - Indonesia
- Renaissance Capital - South Africa
- European Bulk Services B.V. - Netherlands
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Thiess Contractors Indonesia
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Semirara Mining Corp, Philippines
- Cement Manufacturers Association - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Banpu Public Company Limited - Thailand
- Petron Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Bayan Resources Tbk. - Indonesia
- Sindya Power Generating Company Private Ltd
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Jaiprakash Power Ventures ltd
- Barasentosa Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Sojitz Corporation - Japan
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- Economic Council, Georgia
- Sical Logistics Limited - India
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Kumho Petrochemical, South Korea
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- The State Trading Corporation of India Ltd
- Georgia Ports Authority, United States
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Aditya Birla Group - India
- Leighton Contractors Pty Ltd - Australia
- Jindal Steel & Power Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Edison Trading Spa - Italy
- Merrill Lynch Commodities Europe
- Savvy Resources Ltd - HongKong
- Holcim Trading Pte Ltd - Singapore
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- Siam City Cement - Thailand
- Coastal Gujarat Power Limited - India
- The Treasury - Australian Government
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Coal and Oil Company - UAE
|
| |
| |
|
