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, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
...
|
|
|
Showing 71 to 75 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Parry Sugars Refinery, India
- Globalindo Alam Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- Ceylon Electricity Board - Sri Lanka
- Star Paper Mills Limited - India
- Indika Energy - Indonesia
- South Luzon Thermal Energy Corporation
- PetroVietnam Power Coal Import and Supply Company
- Savvy Resources Ltd - HongKong
- Planning Commission, India
- Independent Power Producers Association of India
- Goldman Sachs - Singapore
- Makarim & Taira - Indonesia
- Mintek Dendrill Indonesia
- Miang Besar Coal Terminal - Indonesia
- Thiess Contractors Indonesia
- Aboitiz Power Corporation - Philippines
- Posco Energy - South Korea
- Marubeni Corporation - India
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- CIMB Investment Bank - Malaysia
- Singapore Mercantile Exchange
- Coastal Gujarat Power Limited - India
- Ministry of Mines - Canada
- Barasentosa Lestari - Indonesia
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Sojitz Corporation - Japan
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Orica Mining Services - Indonesia
- Vedanta Resources Plc - India
- Medco Energi Mining Internasional
- Central Electricity Authority - India
- SMC Global Power, Philippines
- Jaiprakash Power Ventures ltd
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Sindya Power Generating Company Private Ltd
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement - Thailand
- Bhatia International Limited - India
- Formosa Plastics Group - Taiwan
- Latin American Coal - Colombia
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Trasteel International SA, Italy
- Parliament of New Zealand
- Binh Thuan Hamico - Vietnam
- Salva Resources Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Vizag Seaport Private Limited - India
- IHS Mccloskey Coal Group - USA
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- Eastern Coal Council - USA
- Banpu Public Company Limited - Thailand
- Coalindo Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Jindal Steel & Power Ltd - India
- The University of Queensland
- Kohat Cement Company Ltd. - Pakistan
- Malabar Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Africa Commodities Group - South Africa
- PTC India Limited - India
- Jorong Barutama Greston.PT - Indonesia
- San Jose City I Power Corp, Philippines
- CNBM International Corporation - China
- The State Trading Corporation of India Ltd
- White Energy Company Limited
- Siam City Cement PLC, Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Agrawal Coal Company - India
- Minerals Council of Australia
- Semirara Mining and Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Meenaskhi Energy Private Limited - India
- Kideco Jaya Agung - Indonesia
- Tata Chemicals Ltd - India
- Kumho Petrochemical, South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- GAC Shipping (India) Pvt Ltd
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bharathi Cement Corporation - India
- Aditya Birla Group - India
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bayan Resources Tbk. - Indonesia
- Port Waratah Coal Services - Australia
- Baramulti Group, Indonesia
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Larsen & Toubro Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Bhushan Steel Limited - India
- VISA Power Limited - India
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Sakthi Sugars Limited - India
- Renaissance Capital - South Africa
- Romanian Commodities Exchange
- Holcim Trading Pte Ltd - Singapore
- Global Coal Blending Company Limited - Australia
- Bhoruka Overseas - Indonesia
- Electricity Authority, New Zealand
- Electricity Generating Authority of Thailand
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Lanco Infratech Ltd - India
- Grasim Industreis Ltd - India
- The Treasury - Australian Government
- Bangladesh Power Developement Board
- Wood Mackenzie - Singapore
- Straits Asia Resources Limited - Singapore
- Pendopo Energi Batubara - Indonesia
- Energy Link Ltd, New Zealand
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- Gujarat Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- ASAPP Information Group - India
- Antam Resourcindo - Indonesia
- Rio Tinto Coal - Australia
- Altura Mining Limited, Indonesia
- Orica Australia Pty. Ltd.
- Kalimantan Lumbung Energi - Indonesia
- Billiton Holdings Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Interocean Group of Companies - India
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Cement Manufacturers Association - India
- Neyveli Lignite Corporation Ltd, - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- MS Steel International - UAE
- Bukit Baiduri Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Xindia Steels Limited - India
- Ministry of Transport, Egypt
- Merrill Lynch Commodities Europe
- Ministry of Finance - Indonesia
- Central Java Power - Indonesia
- Eastern Energy - Thailand
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Samtan Co., Ltd - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
|
| |
| |
|
