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.
|
|
Sunday, 10 September 23
CHINA AUGUST COAL IMPORTS OF 44.3 MLN T HIT RECORD - REUTERS
China, the world’s top coal consumer, imported 44.3 million metric tons of the fuel last month, customs data showed, the highest amount in an ...
Tuesday, 22 August 23
CHINA'S COAL PRODUCTION LOGS STEADY GROWTH IN JANUARY-JULY: XINHUA
China’s output of raw coal went up 3.6 percent year on year in the first seven months of this year, official data showed.
The ...
Sunday, 13 August 23
THE COMMODITIES FEED: LNG SUPPLY RISKS LINGER - ING
Energy – OPEC sees deficit over remainder of 2023
Oil prices came under some pressure yesterday with ICE Brent settling a litt ...
Wednesday, 09 August 23
COAL TRADE TO RETURN TO 2019 LEVELS - BALTIC EXCHANGE
The International Energy Agency’s mid-year Coal Market Update for 2023 brings both positive and concerning news for the global coal industry. ...
Sunday, 23 July 23
ANALYSIS-INDIA'S COAL MINING BET STUMBLES AS WARY BANKS WEIGH RISING RISKS - REUTERS
India’s drive to ramp up coal output to meet growing energy demand is faltering due to banks’ reluctance to finance newly auctioned min ...
|
|
|
Showing 86 to 90 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Ambuja Cements Ltd - India
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- Tamil Nadu electricity Board
- Global Coal Blending Company Limited - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- Maheswari Brothers Coal Limited - India
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Eastern Coal Council - USA
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Economic Council, Georgia
- Essar Steel Hazira Ltd - India
- European Bulk Services B.V. - Netherlands
- Interocean Group of Companies - India
- GVK Power & Infra Limited - India
- San Jose City I Power Corp, Philippines
- Orica Australia Pty. Ltd.
- Uttam Galva Steels Limited - India
- Heidelberg Cement - Germany
- Indo Tambangraya Megah - Indonesia
- Posco Energy - South Korea
- Iligan Light & Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- McConnell Dowell - Australia
- Indian Energy Exchange, India
- Cement Manufacturers Association - India
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Dalmia Cement Bharat India
- GN Power Mariveles Coal Plant, Philippines
- CIMB Investment Bank - Malaysia
- Manunggal Multi Energi - Indonesia
- Simpson Spence & Young - Indonesia
- Coal and Oil Company - UAE
- Bulk Trading Sa - Switzerland
- Gujarat Sidhee Cement - India
- Bukit Baiduri Energy - Indonesia
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Thai Mozambique Logistica
- Gujarat Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- PTC India Limited - India
- Anglo American - United Kingdom
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Kepco SPC Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Riau Bara Harum - Indonesia
- Timah Investasi Mineral - Indoneisa
- Australian Coal Association
- Kalimantan Lumbung Energi - Indonesia
- VISA Power Limited - India
- Coalindo Energy - Indonesia
- Mintek Dendrill Indonesia
- MS Steel International - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Attock Cement Pakistan Limited
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- Barasentosa Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Trasteel International SA, Italy
- Independent Power Producers Association of India
- Carbofer General Trading SA - India
- Indika Energy - Indonesia
- Indian Oil Corporation Limited
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- Karaikal Port Pvt Ltd - India
- Marubeni Corporation - India
- The University of Queensland
- Coastal Gujarat Power Limited - India
- Petron Corporation, Philippines
- SMG Consultants - Indonesia
- Binh Thuan Hamico - Vietnam
- Toyota Tsusho Corporation, Japan
- Mercuria Energy - Indonesia
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- Larsen & Toubro Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- SMC Global Power, Philippines
- India Bulls Power Limited - India
- IEA Clean Coal Centre - UK
- Sical Logistics Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhatia International Limited - India
- Leighton Contractors Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- Merrill Lynch Commodities Europe
- South Luzon Thermal Energy Corporation
- ASAPP Information Group - India
- Baramulti Group, Indonesia
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- Planning Commission, India
- Sojitz Corporation - Japan
- London Commodity Brokers - England
- Bukit Asam (Persero) Tbk - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Electricity Generating Authority of Thailand
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Borneo Indobara - Indonesia
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Aditya Birla Group - India
- Billiton Holdings Pty Ltd - Australia
- Bharathi Cement Corporation - India
- Sarangani Energy Corporation, Philippines
- Madhucon Powers Ltd - India
- Price Waterhouse Coopers - Russia
- Lanco Infratech Ltd - India
- Ind-Barath Power Infra Limited - India
- Singapore Mercantile Exchange
- The Treasury - Australian Government
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sinarmas Energy and Mining - Indonesia
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- AsiaOL BioFuels Corp., Philippines
- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- Romanian Commodities Exchange
- Meralco Power Generation, Philippines
- Bhoruka Overseas - Indonesia
- Eastern Energy - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Bangladesh Power Developement Board
- Global Green Power PLC Corporation, Philippines
- Star Paper Mills Limited - India
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Thiess Contractors Indonesia
- Krishnapatnam Port Company Ltd. - India
- Chettinad Cement Corporation Ltd - India
- Georgia Ports Authority, United States
- Renaissance Capital - South Africa
- Power Finance Corporation Ltd., India
- Pendopo Energi Batubara - Indonesia
- White Energy Company Limited
- Neyveli Lignite Corporation Ltd, - India
- Mjunction Services Limited - India
- Latin American Coal - Colombia
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sree Jayajothi Cements Limited - India
- PowerSource Philippines DevCo
- Formosa Plastics Group - Taiwan
- Kumho Petrochemical, South Korea
- Semirara Mining and Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Alfred C Toepfer International GmbH - Germany
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Rio Tinto Coal - Australia
- Parliament of New Zealand
- GMR Energy Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Grasim Industreis Ltd - India
- Xindia Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Altura Mining Limited, Indonesia
|
| |
| |
|
