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.
|
|
Friday, 18 September 20
INDIA'S COAL-FIRED POWER OUTPUT PICKS UP AS INDUSTRIAL USE RISES - REUTERS
India’s coal-fired electricity generation rose 9.4% in the first half of September, provisional government data showed, as demand from indust ...
Friday, 18 September 20
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Thursday, 17 September 20
LAST HOPES FOR DEMAND GROWTH SET TO DISAPPOINT THERMAL COAL EXPORTERS - IEEFA
Asian thermal coal exporters are fighting an uphill battle even in new markets
The world’s largest thermal coal exporter is eyeing new m ...
Wednesday, 16 September 20
MARKET INSIGHT - INTERMODAL
Another active week in terms of SnP has concluded in the dry bulk market with a diversified array of transactions recorded. Despite the correction ...
Friday, 11 September 20
IMO 2020: A REVIEW OF THE TRANSITION TO VLSFOS - GARD
KNOWLEDGE TO ELEVATE
Many predictions were made in the run up to the imposition of the MARPOL 2020 sulphur cap, none of which was that the tra ...
|
|
|
Showing 781 to 785 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Orica Australia Pty. Ltd.
- Coal and Oil Company - UAE
- London Commodity Brokers - England
- Petrochimia International Co. Ltd.- Taiwan
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Bharathi Cement Corporation - India
- Port Waratah Coal Services - Australia
- Holcim Trading Pte Ltd - Singapore
- Bhatia International Limited - India
- Aditya Birla Group - India
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- Mercator Lines Limited - India
- Sojitz Corporation - Japan
- Semirara Mining and Power Corporation, Philippines
- Eastern Energy - Thailand
- White Energy Company Limited
- SMG Consultants - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Standard Chartered Bank - UAE
- Dalmia Cement Bharat India
- Tamil Nadu electricity Board
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Therma Luzon, Inc, Philippines
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- New Zealand Coal & Carbon
- Ceylon Electricity Board - Sri Lanka
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- Mercuria Energy - Indonesia
- Trasteel International SA, Italy
- Salva Resources Pvt Ltd - India
- Electricity Authority, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thai Mozambique Logistica
- OPG Power Generation Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- Kumho Petrochemical, South Korea
- Borneo Indobara - Indonesia
- Georgia Ports Authority, United States
- Lanco Infratech Ltd - India
- McConnell Dowell - Australia
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Samtan Co., Ltd - South Korea
- Indonesian Coal Mining Association
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Energy Link Ltd, New Zealand
- Globalindo Alam Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kohat Cement Company Ltd. - Pakistan
- The State Trading Corporation of India Ltd
- Vedanta Resources Plc - India
- Ministry of Finance - Indonesia
- Sindya Power Generating Company Private Ltd
- Orica Mining Services - Indonesia
- Sarangani Energy Corporation, Philippines
- Coastal Gujarat Power Limited - India
- MS Steel International - UAE
- Formosa Plastics Group - Taiwan
- CNBM International Corporation - China
- Bulk Trading Sa - Switzerland
- Star Paper Mills Limited - India
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Chamber of Mines of South Africa
- Cement Manufacturers Association - India
- Gujarat Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Planning Commission, India
- Minerals Council of Australia
- Heidelberg Cement - Germany
- Essar Steel Hazira Ltd - India
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Global Business Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Deloitte Consulting - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Agrawal Coal Company - India
- Alfred C Toepfer International GmbH - Germany
- Maharashtra Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Mjunction Services Limited - India
- IEA Clean Coal Centre - UK
- Posco Energy - South Korea
- Simpson Spence & Young - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Transport, Egypt
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- The University of Queensland
- GN Power Mariveles Coal Plant, Philippines
- Barasentosa Lestari - Indonesia
- VISA Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Africa Commodities Group - South Africa
- Uttam Galva Steels Limited - India
- PowerSource Philippines DevCo
- Gujarat Mineral Development Corp Ltd - India
- International Coal Ventures Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- GVK Power & Infra Limited - India
- Central Electricity Authority - India
- Sinarmas Energy and Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement PLC, Thailand
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Parliament of New Zealand
- Oldendorff Carriers - Singapore
- Miang Besar Coal Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- GMR Energy Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indogreen Group - Indonesia
- Meenaskhi Energy Private Limited - India
- European Bulk Services B.V. - Netherlands
- SMC Global Power, Philippines
- Petron Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Toyota Tsusho Corporation, Japan
- Baramulti Group, Indonesia
- Aboitiz Power Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Economic Council, Georgia
- Medco Energi Mining Internasional
- Kideco Jaya Agung - Indonesia
- Altura Mining Limited, Indonesia
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Meralco Power Generation, Philippines
- Ambuja Cements Ltd - India
- Sical Logistics Limited - India
- Interocean Group of Companies - India
- Madhucon Powers Ltd - India
- Renaissance Capital - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Eastern Coal Council - USA
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Australian Coal Association
- Indian Oil Corporation Limited
- Wood Mackenzie - Singapore
- Bhushan Steel Limited - India
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- PTC India Limited - India
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Videocon Industries ltd - India
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- Commonwealth Bank - Australia
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Central Java Power - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Leighton Contractors Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Kalimantan Lumbung Energi - Indonesia
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- Marubeni Corporation - India
- Thiess Contractors Indonesia
- Sree Jayajothi Cements Limited - India
- Vizag Seaport Private Limited - India
- Price Waterhouse Coopers - Russia
- Gujarat Sidhee Cement - India
|
| |
| |
|
