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.
|
|
Tuesday, 14 July 09
NEWCASTLE WEEKLY COAL EXPORTS RISE 11%; SHIP QUEUE DECREASES
Bloomberg reported that, Coal shipments from Australia’s Newcastle port, the world’s biggest export harbor for the fuel, gained 11 ...
Monday, 13 July 09
EXPORT COAL PRODUCTION FROM MOOIPLAATS COULD START IN NOVEMBER
Mining Weekly reported that, South Africa-focused emerging miner Coal of Africa (CoAL) has completed a revised mining layout for its Mooiplaats ...
Monday, 13 July 09
NAPOCOR AWARDS 195,000 T COAL TO INDONESIAN FIRMS
ABC-CBN News reported that, Philippine electricity producer National Power Corp (Napocor) has awarded 195,000 tons in coal supply contracts to two I ...
Monday, 13 July 09
PAKISTAN TO IMPORT ABOUT 2.4 MILLION TONS OF INDONESIAN COAL AND 1.6 MILLION TON OF SOUTH AFRICAN COAL WITHIN NEXT 12 MONTHS
COALspot.com (Pakistan) : Pakistan has exported well over 12 million tons of cement while local sales have dropped a bit with the result 33 million to ...
Monday, 13 July 09
COAL SECTOR IN VIETNAM INCREASE THE TARGET 43 MILLION TONNES THIS YEAR
Asian Mining Stock reported that, there was a change in a very good Coal Mining Industries Group (TKV) that Vietnam has decided to increase coa ...
|
|
|
Showing 6606 to 6610 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- Iligan Light & Power Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- Independent Power Producers Association of India
- Goldman Sachs - Singapore
- Minerals Council of Australia
- Essar Steel Hazira Ltd - India
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Timah Investasi Mineral - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Larsen & Toubro Limited - India
- Malabar Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Salva Resources Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- Indian Energy Exchange, India
- Antam Resourcindo - Indonesia
- TeaM Sual Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Sidhee Cement - India
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- CIMB Investment Bank - Malaysia
- ICICI Bank Limited - India
- Ambuja Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Jaiprakash Power Ventures ltd
- New Zealand Coal & Carbon
- Vizag Seaport Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Africa Commodities Group - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- India Bulls Power Limited - India
- Australian Commodity Traders Exchange
- Tata Chemicals Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Economic Council, Georgia
- Gujarat Mineral Development Corp Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- IHS Mccloskey Coal Group - USA
- Bukit Makmur.PT - Indonesia
- White Energy Company Limited
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Deloitte Consulting - India
- Eastern Energy - Thailand
- Marubeni Corporation - India
- Baramulti Group, Indonesia
- Romanian Commodities Exchange
- CNBM International Corporation - China
- Intertek Mineral Services - Indonesia
- Indogreen Group - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- Price Waterhouse Coopers - Russia
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Central Electricity Authority - India
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- ASAPP Information Group - India
- The Treasury - Australian Government
- Directorate Of Revenue Intelligence - India
- Samtan Co., Ltd - South Korea
- Attock Cement Pakistan Limited
- Videocon Industries ltd - India
- Kepco SPC Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Formosa Plastics Group - Taiwan
- Bhushan Steel Limited - India
- Mercuria Energy - Indonesia
- Port Waratah Coal Services - Australia
- Merrill Lynch Commodities Europe
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Singapore Mercantile Exchange
- Bukit Baiduri Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Wood Mackenzie - Singapore
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- Electricity Authority, New Zealand
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Global Coal Blending Company Limited - Australia
- Coalindo Energy - Indonesia
- Eastern Coal Council - USA
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- Agrawal Coal Company - India
- Global Business Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Latin American Coal - Colombia
- Borneo Indobara - Indonesia
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Mercator Lines Limited - India
- GAC Shipping (India) Pvt Ltd
- Kumho Petrochemical, South Korea
- Ind-Barath Power Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Dalmia Cement Bharat India
- Sical Logistics Limited - India
- Holcim Trading Pte Ltd - Singapore
- McConnell Dowell - Australia
- Mintek Dendrill Indonesia
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Makarim & Taira - Indonesia
- Indonesian Coal Mining Association
- Orica Mining Services - Indonesia
- Ministry of Mines - Canada
- Sarangani Energy Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Renaissance Capital - South Africa
- Wilmar Investment Holdings
- OPG Power Generation Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Energy Link Ltd, New Zealand
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- Coastal Gujarat Power Limited - India
- Bharathi Cement Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Edison Trading Spa - Italy
- IEA Clean Coal Centre - UK
- Thai Mozambique Logistica
- GVK Power & Infra Limited - India
- Trasteel International SA, Italy
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Petron Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Ministry of Transport, Egypt
- Central Java Power - Indonesia
- SMC Global Power, Philippines
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- MS Steel International - UAE
- Siam City Cement - Thailand
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Oldendorff Carriers - Singapore
- Anglo American - United Kingdom
- Power Finance Corporation Ltd., India
- Parliament of New Zealand
- South Luzon Thermal Energy Corporation
- Orica Australia Pty. Ltd.
- GN Power Mariveles Coal Plant, Philippines
- Planning Commission, India
- Neyveli Lignite Corporation Ltd, - India
- VISA Power Limited - India
- Heidelberg Cement - Germany
- Georgia Ports Authority, United States
- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- Carbofer General Trading SA - India
- Commonwealth Bank - Australia
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- Ministry of Finance - Indonesia
- Electricity Generating Authority of Thailand
- Kaltim Prima Coal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- San Jose City I Power Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Lanco Infratech Ltd - India
- Chettinad Cement Corporation Ltd - India
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- Meralco Power Generation, Philippines
- Kobexindo Tractors - Indoneisa
- Bangladesh Power Developement Board
|
| |
| |
|
