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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
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Friday, 26 February 10
BANPU PROFITS SURGE BY 54% TO RECORD B14BN ON BRISK SALES
Banpu Plc, Asean's largest coal miner, said its earnings surged to a record high of 14.23 billion baht last year, an increase of 54% on the previou ...
Thursday, 25 February 10
INDO / INDIA COAL TRIPS SUPRAS CAN ACHIEVE AROUND MID 10S - FEARNLEYS AS
Handy
The BSI regained positive momentum exactly a week ago and the Atlantic rema ...
Thursday, 25 February 10
STEEP RISE IN COAL IMPORTS REQUIRED TO POWER INDIA - MONEYLIFE
The power ministry has estimated coal imports of 48 million tonnes in FY10-11, sharply higher than the expected imports of 28mt in the current fisca ...
Wednesday, 24 February 10
CHINA IMPORTED 8.81 MLN TONS OF INDONESIAN COAL IN JANUARY 2010
COALspot.com: Indonesia, the world largest coal exporter, exported 24.38 million tons of coal last month, compared with 27.46 million tons in a ...
Tuesday, 23 February 10
TRENDS..... DRY BULK MARKET .... TRENDS
The dry bulk market was pulled along by the Capes this week, as fresh enquiry breathed temporary life back into the market. Short period rates also ...
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Showing 5971 to 5975 news of total 6871 |
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- Ceylon Electricity Board - Sri Lanka
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- SMG Consultants - Indonesia
- Tamil Nadu electricity Board
- Jaiprakash Power Ventures ltd
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Anglo American - United Kingdom
- Aboitiz Power Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Electricity Authority, New Zealand
- Interocean Group of Companies - India
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Thiess Contractors Indonesia
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- PNOC Exploration Corporation - Philippines
- Sakthi Sugars Limited - India
- Altura Mining Limited, Indonesia
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- Trasteel International SA, Italy
- Bharathi Cement Corporation - India
- Chettinad Cement Corporation Ltd - India
- Romanian Commodities Exchange
- Alfred C Toepfer International GmbH - Germany
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Edison Trading Spa - Italy
- Planning Commission, India
- Posco Energy - South Korea
- Mercuria Energy - Indonesia
- Aditya Birla Group - India
- GVK Power & Infra Limited - India
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- South Luzon Thermal Energy Corporation
- The State Trading Corporation of India Ltd
- Rashtriya Ispat Nigam Limited - India
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Vedanta Resources Plc - India
- Mercator Lines Limited - India
- Rio Tinto Coal - Australia
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- GMR Energy Limited - India
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- SMC Global Power, Philippines
- Holcim Trading Pte Ltd - Singapore
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Eastern Coal Council - USA
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- London Commodity Brokers - England
- Grasim Industreis Ltd - India
- Cement Manufacturers Association - India
- Pendopo Energi Batubara - Indonesia
- Central Java Power - Indonesia
- Thai Mozambique Logistica
- Bulk Trading Sa - Switzerland
- Bukit Baiduri Energy - Indonesia
- Attock Cement Pakistan Limited
- Ind-Barath Power Infra Limited - India
- Madhucon Powers Ltd - India
- Ministry of Transport, Egypt
- Port Waratah Coal Services - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Vizag Seaport Private Limited - India
- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- Gujarat Sidhee Cement - India
- Marubeni Corporation - India
- Bangladesh Power Developement Board
- Barasentosa Lestari - Indonesia
- Economic Council, Georgia
- White Energy Company Limited
- Malabar Cements Ltd - India
- Larsen & Toubro Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Makmur.PT - Indonesia
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Kaltim Prima Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Binh Thuan Hamico - Vietnam
- SN Aboitiz Power Inc, Philippines
- Energy Link Ltd, New Zealand
- Power Finance Corporation Ltd., India
- Wood Mackenzie - Singapore
- Bayan Resources Tbk. - Indonesia
- Dalmia Cement Bharat India
- Kideco Jaya Agung - Indonesia
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- IEA Clean Coal Centre - UK
- PetroVietnam Power Coal Import and Supply Company
- Therma Luzon, Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Directorate Of Revenue Intelligence - India
- PTC India Limited - India
- Goldman Sachs - Singapore
- Videocon Industries ltd - India
- Banpu Public Company Limited - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tata Chemicals Ltd - India
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kapuas Tunggal Persada - Indonesia
- Uttam Galva Steels Limited - India
- Africa Commodities Group - South Africa
- Siam City Cement - Thailand
- Meenaskhi Energy Private Limited - India
- MS Steel International - UAE
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Eastern Energy - Thailand
- Kumho Petrochemical, South Korea
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- Latin American Coal - Colombia
- Semirara Mining Corp, Philippines
- TeaM Sual Corporation - Philippines
- The Treasury - Australian Government
- PowerSource Philippines DevCo
- Bhatia International Limited - India
- Metalloyd Limited - United Kingdom
- Toyota Tsusho Corporation, Japan
- Riau Bara Harum - Indonesia
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Mintek Dendrill Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Central Electricity Authority - India
- Simpson Spence & Young - Indonesia
- Heidelberg Cement - Germany
- Minerals Council of Australia
- Commonwealth Bank - Australia
- The University of Queensland
- Energy Development Corp, Philippines
- Price Waterhouse Coopers - Russia
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Ministry of Mines - Canada
- Wilmar Investment Holdings
- Bank of Tokyo Mitsubishi UFJ Ltd
- Baramulti Group, Indonesia
- GAC Shipping (India) Pvt Ltd
- Meralco Power Generation, Philippines
- Antam Resourcindo - Indonesia
- Petron Corporation, Philippines
- Indika Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Coalindo Energy - Indonesia
- Standard Chartered Bank - UAE
- Formosa Plastics Group - Taiwan
- New Zealand Coal & Carbon
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Global Coal Blending Company Limited - Australia
- Sical Logistics Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indonesian Coal Mining Association
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- Bhushan Steel Limited - India
- Orica Australia Pty. Ltd.
- Australian Coal Association
- IHS Mccloskey Coal Group - USA
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
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