keeps you connected across the coal world

Submit Your Articles
We welcome article submissions from experts in the areas of coal, mining, shipping, etc.

To Submit your article please click here.

International Energy Events

WTI Crude Oil

BRENT Crude Oil

Search News
Latest CoalNews Headlines
Monday, 05 September 11

Analyst : Sunil K Kumbhat - 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).

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.

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.

Recent News

Wednesday, 13 January 21
High coal and gas prices will put near-term pressure on margins for thermal power generators in China, says Fitch Ratings. However, the power short ...

Wednesday, 13 January 21
The Centre on Monday awarded the letter of allocation to successful bidders of coal mines under the commercial auction held during October-November ...

Monday, 11 January 21
Coal demand is expected to rebound in 2021   Medium-term outlook is less favourable although demand declines are expected to be subtle ...

Sunday, 10 January 21
KOREAN GENCOS INVITED BIDS FOR TOTAL 880,000 TONS OF COAL FOR MARCH 2021 LOADING Korea South-East Power Co., Ltd. (KOEN),  on behalf of EWP, KOSPO, KOSEP and KOWEPO issued an international tender for total 880 ...

Friday, 08 January 21
The focus should be on helping manufacturers become globally competitive Although one of the top 10 solar module producers in the world, India ...

   1 2 3 4 5   
Showing 6 to 10 news of total 6204
News by Category
Popular News
Total Members : 27,251
User ID
Remember Me
By logging on you accept our TERMS OF USE.
Forgot Password
Our Members Are From ...

  • Neyveli Lignite Corporation Ltd, - India
  • McKinsey & Co - India
  • globalCOAL - UK
  • TANGEDCO India
  • Interocean Group of Companies - India
  • Standard Chartered Bank - UAE
  • Marubeni Corporation - India
  • Petrosea - Indonesia
  • Bank of China, Malaysia
  • Britmindo - Indonesia
  • Therma Luzon, Inc, Philippines
  • APGENCO India
  • Jaiprakash Power Ventures ltd
  • Coeclerici Indonesia
  • Holcim Trading Pte Ltd - Singapore
  • Barasentosa Lestari - Indonesia
  • KOWEPO - South Korea
  • Bukit Asam (Persero) Tbk - Indonesia
  • Jatenergy - Australia
  • Gupta Coal India Ltd
  • Minerals Council of Australia
  • Jorong Barutama Greston.PT - Indonesia
  • Freeport Indonesia
  • Kalimantan Lumbung Energi - Indonesia
  • Jindal Steel & Power Ltd - India
  • Medco Energi Mining Internasional
  • Adaro Indonesia
  • Eastern Coal Council - USA
  • Rudhra Energy - India
  • Ernst & Young Pvt. Ltd.
  • Riau Bara Harum - Indonesia
  • CIMB Investment Bank - Malaysia
  • Asia Cement - Taiwan
  • Makarim & Taira - Indonesia
  • The University of Queensland
  • Directorate Of Revenue Intelligence - India
  • Tata Chemicals Ltd - India
  • Indorama - Singapore
  • Chamber of Mines of South Africa
  • Kaltim Prima Coal - Indonesia
  • Eastern Energy - Thailand
  • World Bank
  • Coal and Oil Company - UAE
  • Vale Mozambique
  • Kideco Jaya Agung - Indonesia
  • Maersk Broker
  • Moodys - Singapore
  • Samsung - South Korea
  • Ambuja Cements Ltd - India
  • Metalloyd Limited - United Kingdom
  • Qatrana Cement - Jordan
  • The State Trading Corporation of India Ltd
  • Indian Oil Corporation Limited
  • PLN - Indonesia
  • Bank of Tokyo Mitsubishi UFJ Ltd
  • Russian Coal LLC
  • Altura Mining Limited, Indonesia
  • Maharashtra Electricity Regulatory Commission - India
  • Meralco Power Generation, Philippines
  • Mitsui
  • Karbindo Abesyapradhi - Indoneisa
  • UBS Singapore
  • Kartika Selabumi Mining - Indonesia
  • MEC Coal - Indonesia
  • MS Steel International - UAE
  • Economic Council, Georgia
  • Ceylon Electricity Board - Sri Lanka
  • EMO - The Netherlands
  • Australian Coal Association
  • Cargill India Pvt Ltd
  • EIA - United States
  • Vitol - Bahrain
  • Bharathi Cement Corporation - India
  • TRAFIGURA, South Korea
  • Gujarat Mineral Development Corp Ltd - India
  • Bhatia International Limited - India
  • Directorate General of MIneral and Coal - Indonesia
  • CESC Limited - India
  • Indonesia Power. PT
  • Karaikal Port Pvt Ltd - India
  • Kohat Cement Company Ltd. - Pakistan
  • Idemitsu - Japan
  • Ince & co LLP
  • GNFC Limited - India
  • bp singapore
  • Xstrata Coal
  • VISA Power Limited - India
  • BRS Brokers - Singapore
  • Bulk Trading Sa - Switzerland
  • TNPL - India
  • Asia Pacific Energy Resources Ventures Inc, Philippines
  • McConnell Dowell - Australia
  • Arutmin Indonesia
  • Shree Cement - India
  • Humpuss - Indonesia
  • Edison Trading Spa - Italy
  • Orica Australia Pty. Ltd.
  • GB Group - China
  • UOB Asia (HK) Ltd
  • RBS Sempra - UK
  • HSBC - Hong Kong
  • White Energy Company Limited
  • Mitsubishi Corporation
  • Kobe Steel Ltd - Japan
  • Gresik Semen - Indonesia
  • GAC Shipping (India) Pvt Ltd
  • Ministry of Mines - Canada
  • SUEK AG - Indonesia
  • Goldman Sachs - Singapore
  • Kapuas Tunggal Persada - Indonesia
  • Krishnapatnam Port Company Ltd. - India
  • Total Coal South Africa
  • Binh Thuan Hamico - Vietnam
  • OPG Power Generation Pvt Ltd - India
  • Maybank - Singapore
  • San Jose City I Power Corp, Philippines
  • PTC India Limited - India
  • TNB Fuel Sdn Bhd - Malaysia
  • Malco - India
  • Indogreen Group - Indonesia
  • CCIC - Indonesia
  • Formosa Plastics Group - Taiwan
  • Thomson Reuters GRC
  • Mjunction Services Limited - India
  • IOL Indonesia
  • Xindia Steels Limited - India
  • Tanito Harum - Indonesia
  • Indo Tambangraya Megah - Indonesia
  • Mechel - Russia
  • Inco-Indonesia
  • Permata Bank - Indonesia
  • Kobexindo Tractors - Indoneisa
  • ETA - Dubai
  • Siam City Cement PLC, Thailand
  • Pipit Mutiara Jaya. PT, Indonesia
  • Electricity Generating Authority of Thailand
  • Platts
  • AsiaOL BioFuels Corp., Philippines
  • Sojitz Corporation - Japan
  • Maruti Cements - India
  • Rashtriya Ispat Nigam Limited - India
  • Cardiff University - UK
  • Iligan Light & Power Inc, Philippines
  • Offshore Bulk Terminal Pte Ltd, Singapore
  • Sucofindo - Indonesia
  • Agrawal Coal Company - India
  • International Coal Ventures Pvt Ltd - India
  • Panama Canal Authority
  • Bhushan Steel Limited - India
  • Central Java Power - Indonesia
  • Bhoruka Overseas - Indonesia
  • IEA Clean Coal Centre - UK
  • World Coal - UK
  • GHCL Limited - India
  • Merrill Lynch Commodities Europe
  • Petrochimia International Co. Ltd.- Taiwan
  • Deutsche Bank - India
  • Bank of America
  • LBH Netherlands Bv - Netherlands
  • European Bulk Services B.V. - Netherlands
  • Aditya Birla Group - India
  • Sakthi Sugars Limited - India
  • Indika Energy - Indonesia
  • Australian Commodity Traders Exchange
  • Peabody Energy - USA
  • Shenhua Group - China
  • Timah Investasi Mineral - Indoneisa
  • Ind-Barath Power Infra Limited - India
  • Dr Ramakrishna Prasad Power Pvt Ltd - India
  • NTPC Limited - India
  • WorleyParsons
  • Rio Tinto Coal - Australia
  • Banpu Public Company Limited - Thailand
  • ANZ Bank - Australia
  • Bukit Baiduri Energy - Indonesia
  • KEPCO - South Korea
  • Maheswari Brothers Coal Limited - India
  • Geoservices-GeoAssay Lab
  • Siam City Cement - Thailand
  • Pendopo Energi Batubara - Indonesia
  • JPMorgan - India
  • Glencore India Pvt. Ltd
  • Cigading International Bulk Terminal - Indonesia
  • IBC Asia (S) Pte Ltd
  • Filglen & Citicon Mining (HK) Ltd - Hong Kong
  • Asmin Koalindo Tuhup - Indonesia
  • Videocon Industries ltd - India
  • DBS Bank - Singapore
  • Essar Steel Hazira Ltd - India
  • Semirara Mining and Power Corporation, Philippines
  • Gujarat Sidhee Cement - India
  • Kumho Petrochemical, South Korea
  • Sarangani Energy Corporation, Philippines
  • Indian School of Mines
  • The Treasury - Australian Government
  • KPCL - India
  • Baramulti Group, Indonesia
  • J M Baxi & Co - India
  • IMC Shipping - Singapore
  • ING Bank NV - Singapore
  • Port Waratah Coal Services - Australia
  • Central Electricity Authority - India
  • Orica Mining Services - Indonesia
  • Coal Orbis AG
  • Ministry of Transport, Egypt
  • Reliance Power - India
  • KPMG - USA
  • Thai Mozambique Logistica
  • PNOC Exploration Corporation - Philippines
  • Cemex - Philippines
  • Cebu Energy, Philippines
  • Asian Development Bank
  • SASOL - South Africa
  • Infraline Energy - India
  • GMR Energy Limited - India
  • Salva Resources Pvt Ltd - India
  • Coaltrans Conferences
  • Parry Sugars Refinery, India
  • Commonwealth Bank - Australia
  • Thriveni
  • SGS (Thailand) Limited
  • Energy Link Ltd, New Zealand
  • Romanian Commodities Exchange
  • Vizag Seaport Private Limited - India
  • Bangladesh Power Developement Board
  • Petron Corporation, Philippines
  • PetroVietnam
  • Coalindo Energy - Indonesia
  • GVK Power & Infra Limited - India
  • Georgia Ports Authority, United States
  • Meenaskhi Energy Private Limited - India
  • Planning Commission, India
  • Sical Logistics Limited - India
  • Billiton Holdings Pty Ltd - Australia
  • Dong Bac Coal Mineral Investment Coporation - Vietnam
  • Merrill Lynch Bank
  • Semirara Mining Corp, Philippines
  • Arch Coal - USA
  • Latin American Coal - Colombia
  • Gujarat Electricity Regulatory Commission - India
  • Trasteel International SA, Italy
  • U S Energy Resources
  • London Commodity Brokers - England
  • Intertek Mineral Services - Indonesia
  • Global Coal Blending Company Limited - Australia
  • Antam Resourcindo - Indonesia
  • Borneo Indobara - Indonesia
  • Surastha Cement
  • South Luzon Thermal Energy Corporation
  • Bukit Makmur.PT - Indonesia
  • ACC Limited - India
  • Enel Italy
  • Thailand Anthracite
  • Lafarge - France
  • Japan Coal Energy Center
  • Truba Alam Manunggal Engineering.Tbk - Indonesia
  • Parliament of New Zealand
  • SMC Global Power, Philippines
  • Anglo American - United Kingdom
  • Bahari Cakrawala Sebuku - Indonesia
  • ICICI Bank Limited - India
  • Mercuria Energy - Indonesia
  • Oldendorff Carriers - Singapore
  • Toyota Tsusho Corporation, Japan
  • Wood Mackenzie - Singapore
  • Larsen & Toubro Limited - India
  • CoalTek, United States
  • Savvy Resources Ltd - HongKong
  • Power Finance Corporation Ltd., India
  • Miang Besar Coal Terminal - Indonesia
  • Ministry of Finance - Indonesia
  • Credit Suisse - India
  • India Bulls Power Limited - India
  • The India Cements Ltd
  • Simpson Spence & Young - Indonesia
  • Tata Power - India
  • BNP Paribas - Singapore
  • Carbofer General Trading SA - India
  • Mercator Lines Limited - India
  • Vedanta Resources Plc - India
  • SRK Consulting
  • Leighton Contractors Pty Ltd - Australia
  • Samtan Co., Ltd - South Korea
  • Coal India Limited
  • Attock Cement Pakistan Limited
  • Lanco Infratech Ltd - India
  • Heidelberg Cement - Germany
  • Uttam Galva Steels Limited - India
  • Posco Energy - South Korea
  • Cement Manufacturers Association - India
  • Mintek Dendrill Indonesia
  • Platou - Singapore
  • Bayan Resources Tbk. - Indonesia
  • Noble Europe Ltd - UK
  • Grasim Industreis Ltd - India
  • IHS Mccloskey Coal Group - USA
  • OCBC - Singapore
  • Indonesian Coal Mining Association
  • Chettinad Cement Corporation Ltd - India
  • Aboitiz Power Corporation - Philippines
  • Clarksons - UK
  • Sree Jayajothi Cements Limited - India
  • Inspectorate - India
  • Mitra SK Pvt Ltd - India
  • Singapore Mercantile Exchange
  • Coastal Gujarat Power Limited - India
  • PowerSource Philippines DevCo
  • New Zealand Coal & Carbon
  • Manunggal Multi Energi - Indonesia
  • Barclays Capital - USA
  • Straits Asia Resources Limited - Singapore
  • Dalmia Cement Bharat India
  • Thermax Limited - India
  • Global Business Power Corporation, Philippines
  • Alfred C Toepfer International GmbH - Germany
  • Tamil Nadu electricity Board
  • Pinang Coal Indonesia
  • Kepco SPC Power Corporation, Philippines
  • TeaM Sual Corporation - Philippines
  • Cosco
  • GN Power Mariveles Coal Plant, Philippines
  • PLN Batubara - Indonesia
  • Malabar Cements Ltd - India
  • SN Aboitiz Power Inc, Philippines
  • Independent Power Producers Association of India
  • Fearnleys - India
  • CNBM International Corporation - China
  • Berau Coal - Indonesia
  • Global Green Power PLC Corporation, Philippines
  • Globalindo Alam Lestari - Indonesia
  • ASAPP Information Group - India
  • Argus Media - Singapore
  • Africa Commodities Group - South Africa
  • Core Mineral Indonesia
  • SMG Consultants - Indonesia
  • PetroVietnam Power Coal Import and Supply Company
  • Wilmar Investment Holdings
  • Sindya Power Generating Company Private Ltd
  • Vijayanagar Sugar Pvt Ltd - India
  • Adani Power Ltd - India
  • Runge Indonesia
  • Renaissance Capital - South Africa
  • Bangkok Bank PCL
  • Thiess Contractors Indonesia
  • JPower - Japan
  • Madhucon Powers Ltd - India
  • NALCO India
  • Star Paper Mills Limited - India
  • Energy Development Corp, Philippines
  • Sinarmas Energy and Mining - Indonesia
  • Deloitte Consulting - India
  • Price Waterhouse Coopers - Russia