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.
|
|
Monday, 28 September 20
NEW LNG PROJECTS - ALL DRESSED UP AND NO PLACE TO GO - WOOD MACKENZIE
It was meant to be another boom year. After a record 70 mmtpa of new LNG capacity was sanctioned in 2019, at least as much capacity was lined up fo ...
Thursday, 24 September 20
SUPRAMAX: INDO TO INDIA FIXING AROUND US$13,000 - FEARNLEYS
Cape
Over the last week the iron ore segment from Brazil to China has picked up, and we see freight rates up USD 2 (12%) week on week Fearnleys ...
Thursday, 24 September 20
KOREA MIDLAND POWER TO BUY 1.92 MILLION TONS OF 4,300-4,700 NCV COAL FOR THREE YEARS
COALspot.com: Korea Midland Power Co. Ltd, has issued an International tender for 640,000 MT 4,300-4,700 kcal/kg NCV coal per year.
...
Wednesday, 23 September 20
VIETNAM'S NEW POWER DEVELOPMENT PLAN MUST OPTIMIZE RENEWABLES AND AVOID FOSSIL FUEL LOCK-IN: IEEFA
EVN’s financial constraints leaves the utility with little room for error
Implementing Vietnam’s soon-to-be-launched next Power De ...
Wednesday, 23 September 20
MARKET INSIGHT - INTERMODAL
Undoubtedly, this year (ongoing) will never be forgotten because in a matter of months it has managed to severely affect and shape our day to day p ...
|
|
|
Showing 776 to 780 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Kumho Petrochemical, South Korea
- Bayan Resources Tbk. - Indonesia
- Gujarat Sidhee Cement - India
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Posco Energy - South Korea
- Xindia Steels Limited - India
- Manunggal Multi Energi - Indonesia
- White Energy Company Limited
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Electricity Generating Authority of Thailand
- CNBM International Corporation - China
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- PowerSource Philippines DevCo
- Latin American Coal - Colombia
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Therma Luzon, Inc, Philippines
- Dalmia Cement Bharat India
- Ceylon Electricity Board - Sri Lanka
- Bangladesh Power Developement Board
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- CIMB Investment Bank - Malaysia
- Lanco Infratech Ltd - India
- Africa Commodities Group - South Africa
- Parry Sugars Refinery, India
- Sical Logistics Limited - India
- Interocean Group of Companies - India
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Petrochimia International Co. Ltd.- Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
- San Jose City I Power Corp, Philippines
- Mjunction Services Limited - India
- Bhushan Steel Limited - India
- IEA Clean Coal Centre - UK
- Anglo American - United Kingdom
- Aditya Birla Group - India
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- Kartika Selabumi Mining - Indonesia
- Commonwealth Bank - Australia
- Merrill Lynch Commodities Europe
- Star Paper Mills Limited - India
- Indonesian Coal Mining Association
- Rio Tinto Coal - Australia
- Central Java Power - Indonesia
- Minerals Council of Australia
- Thiess Contractors Indonesia
- Simpson Spence & Young - Indonesia
- Independent Power Producers Association of India
- Bukit Asam (Persero) Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Planning Commission, India
- Orica Mining Services - Indonesia
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- Kideco Jaya Agung - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- GMR Energy Limited - India
- Australian Coal Association
- Indika Energy - Indonesia
- Wilmar Investment Holdings
- Essar Steel Hazira Ltd - India
- International Coal Ventures Pvt Ltd - India
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Videocon Industries ltd - India
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Iligan Light & Power Inc, Philippines
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Carbofer General Trading SA - India
- PNOC Exploration Corporation - Philippines
- Jaiprakash Power Ventures ltd
- TeaM Sual Corporation - Philippines
- Barasentosa Lestari - Indonesia
- GVK Power & Infra Limited - India
- Price Waterhouse Coopers - Russia
- PTC India Limited - India
- Georgia Ports Authority, United States
- The University of Queensland
- OPG Power Generation Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Binh Thuan Hamico - Vietnam
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
- Thai Mozambique Logistica
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
- Salva Resources Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Semirara Mining Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Mercator Lines Limited - India
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Central Electricity Authority - India
- The Treasury - Australian Government
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Oldendorff Carriers - Singapore
- Bhatia International Limited - India
- Electricity Authority, New Zealand
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Borneo Indobara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Energy Link Ltd, New Zealand
- Ambuja Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Kobexindo Tractors - Indoneisa
- Altura Mining Limited, Indonesia
- Kaltim Prima Coal - Indonesia
- Medco Energi Mining Internasional
- Bahari Cakrawala Sebuku - Indonesia
- Eastern Coal Council - USA
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Formosa Plastics Group - Taiwan
- Toyota Tsusho Corporation, Japan
- ICICI Bank Limited - India
- Cigading International Bulk Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Baramulti Group, Indonesia
- Indian Oil Corporation Limited
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Tamil Nadu electricity Board
- AsiaOL BioFuels Corp., Philippines
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement PLC, Thailand
- Bhoruka Overseas - Indonesia
- Karaikal Port Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Bukit Baiduri Energy - Indonesia
- London Commodity Brokers - England
- Vizag Seaport Private Limited - India
- Deloitte Consulting - India
- Siam City Cement - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Madhucon Powers Ltd - India
- Marubeni Corporation - India
- Holcim Trading Pte Ltd - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indogreen Group - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- Coal and Oil Company - UAE
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Cement Manufacturers Association - India
- Vedanta Resources Plc - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Port Waratah Coal Services - Australia
- Rashtriya Ispat Nigam Limited - India
- Antam Resourcindo - Indonesia
- Metalloyd Limited - United Kingdom
- Miang Besar Coal Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- Larsen & Toubro Limited - India
|
| |
| |
|
