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.
|
|
Wednesday, 09 September 09
CHINESE INTEREST IN AUSTRALIA COAL TICKS UP AS PRICES FALL
After a lull of about two months, Australian thermal coal producers are now seeing renewed interest from Chinese buyers for spot cargoes in the four ...
Wednesday, 09 September 09
SALES FORECAST UP ON BETTER DISTRIBUTION
The Jakarta Post reported that, State coal producer PT Tambang Batubara Bukit Asam (PT BA) expects coal sales to rise by 11 percent next year as it ...
Wednesday, 09 September 09
NTPC HIRES MACQUARIE TO ADVISE INDONESIA COAL MINE PURCHASE
Bloomberg reported that, NTPC Ltd., Asia’s biggest power utility by value, has hired Macquarie Group Ltd. to evaluate a proposed coal mine pur ...
Tuesday, 08 September 09
SOUTH AFRICAN COAL FALLS MOST IN 11 WEEKS ON EXCESSIVE PRICES
Bloomberg reported that, Prices for coal shipped from South Africa’s Richards Bay, site of the world’s largest export terminal for the f ...
Tuesday, 08 September 09
INDIA MAY HAVE A JOINT WORKING GROUP FOR COAL WITH INDONESIA: SRIPRAKASH JAISWAL - PRESS RELEASE
Press Information Bureau of India reported in its web site that, The Coal Ministry has, in principle, agreed to set up a Joint Working Group for coa ...
|
|
|
Showing 6436 to 6440 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Ind-Barath Power Infra Limited - India
- SMG Consultants - Indonesia
- PNOC Exploration Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- Siam City Cement - Thailand
- Lanco Infratech Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Coastal Gujarat Power Limited - India
- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- South Luzon Thermal Energy Corporation
- Edison Trading Spa - Italy
- Indonesian Coal Mining Association
- Straits Asia Resources Limited - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- Metalloyd Limited - United Kingdom
- Banpu Public Company Limited - Thailand
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Commonwealth Bank - Australia
- Heidelberg Cement - Germany
- Merrill Lynch Commodities Europe
- Independent Power Producers Association of India
- Georgia Ports Authority, United States
- Thiess Contractors Indonesia
- CIMB Investment Bank - Malaysia
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- India Bulls Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- PTC India Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Kepco SPC Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- CNBM International Corporation - China
- Interocean Group of Companies - India
- Goldman Sachs - Singapore
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- Sinarmas Energy and Mining - Indonesia
- Agrawal Coal Company - India
- Economic Council, Georgia
- Sakthi Sugars Limited - India
- Bangladesh Power Developement Board
- LBH Netherlands Bv - Netherlands
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Vizag Seaport Private Limited - India
- Parliament of New Zealand
- Savvy Resources Ltd - HongKong
- Maheswari Brothers Coal Limited - India
- Formosa Plastics Group - Taiwan
- Bulk Trading Sa - Switzerland
- Australian Commodity Traders Exchange
- Sree Jayajothi Cements Limited - India
- Medco Energi Mining Internasional
- Australian Coal Association
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Latin American Coal - Colombia
- Sindya Power Generating Company Private Ltd
- Makarim & Taira - Indonesia
- International Coal Ventures Pvt Ltd - India
- Africa Commodities Group - South Africa
- Bhatia International Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- The University of Queensland
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Central Electricity Authority - India
- Videocon Industries ltd - India
- Grasim Industreis Ltd - India
- Global Green Power PLC Corporation, Philippines
- Gujarat Sidhee Cement - India
- Renaissance Capital - South Africa
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Mjunction Services Limited - India
- Aboitiz Power Corporation - Philippines
- Standard Chartered Bank - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- Minerals Council of Australia
- Petron Corporation, Philippines
- Trasteel International SA, Italy
- Kapuas Tunggal Persada - Indonesia
- Bharathi Cement Corporation - India
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Bhushan Steel Limited - India
- Global Coal Blending Company Limited - Australia
- Gujarat Mineral Development Corp Ltd - India
- Bhoruka Overseas - Indonesia
- Meralco Power Generation, Philippines
- Pendopo Energi Batubara - Indonesia
- Energy Development Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Sical Logistics Limited - India
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Samtan Co., Ltd - South Korea
- Thai Mozambique Logistica
- Siam City Cement PLC, Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- GMR Energy Limited - India
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chamber of Mines of South Africa
- Semirara Mining Corp, Philippines
- Xindia Steels Limited - India
- IEA Clean Coal Centre - UK
- Mercuria Energy - Indonesia
- Indika Energy - Indonesia
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Oil Corporation Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Power Finance Corporation Ltd., India
- Kartika Selabumi Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
- Antam Resourcindo - Indonesia
- Indogreen Group - Indonesia
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Manunggal Multi Energi - Indonesia
- Port Waratah Coal Services - Australia
- Kaltim Prima Coal - Indonesia
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Vedanta Resources Plc - India
- Bayan Resources Tbk. - Indonesia
- Cement Manufacturers Association - India
- Ministry of Mines - Canada
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Asmin Koalindo Tuhup - Indonesia
- Indo Tambangraya Megah - Indonesia
- Romanian Commodities Exchange
- Marubeni Corporation - India
- White Energy Company Limited
- ASAPP Information Group - India
- SMC Global Power, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Larsen & Toubro Limited - India
- Kobexindo Tractors - Indoneisa
- New Zealand Coal & Carbon
- Indian Energy Exchange, India
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- AsiaOL BioFuels Corp., Philippines
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- PowerSource Philippines DevCo
- Toyota Tsusho Corporation, Japan
- Wilmar Investment Holdings
- ICICI Bank Limited - India
- Simpson Spence & Young - Indonesia
- Altura Mining Limited, Indonesia
- Madhucon Powers Ltd - India
- Borneo Indobara - Indonesia
- San Jose City I Power Corp, Philippines
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
|
| |
| |
|
