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.
|
|
Tuesday, 14 January 20
MABUX: BUNKER MARKET THIS MORNING, JAN.14
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO (Gasoil) in the main world hubs) changed insignificant and i ...
Tuesday, 14 January 20
SHIPPING MARKET ANALYSIS - ALLIED SHIPBROKING
Uncertainty in the global geopolitical sphere seems to have not come to an end along with 2019, as 2020 commenced with renewed tensions between the ...
Tuesday, 14 January 20
DRY BULK MARKET: "THIS IS NOT THE END OF COAL" SAYS IEA - BALTIC EXCHANGE
A historic drop in coal-fired electricity generation will not sway global coal demand from its upward trajectory through to 2024, though growth wil ...
Saturday, 11 January 20
ARE YOU 95% CONFIDENT THAT YOUR VERY LOW SULPHUR FUEL IS ON SPEC AND MARPOL COMPLIANT? - GARD
KNOWLEDGE TO ELEVATE
Bunker fuel is a commodity and, like all commodities, is produced and sold according to specifications. Bunkers are usual ...
Saturday, 11 January 20
NEW PRICING COULD SPELL TROUBLE FOR CHINA'S COAL SECTOR - CHINA DIALOGUE
Benchmark coal tariffs have been the foundation of China’s electricity pricing since 2004 but this mechanism was replaced on January 1 with a ...
|
|
|
Showing 1196 to 1200 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Deloitte Consulting - India
- SN Aboitiz Power Inc, Philippines
- Indogreen Group - Indonesia
- Global Business Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- India Bulls Power Limited - India
- Borneo Indobara - Indonesia
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Kideco Jaya Agung - Indonesia
- Bhushan Steel Limited - India
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Australian Coal Association
- Indian Energy Exchange, India
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Therma Luzon, Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Standard Chartered Bank - UAE
- Indian Oil Corporation Limited
- Jaiprakash Power Ventures ltd
- Uttam Galva Steels Limited - India
- Africa Commodities Group - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate Of Revenue Intelligence - India
- Mercator Lines Limited - India
- Kumho Petrochemical, South Korea
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Energy Development Corp, Philippines
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Planning Commission, India
- IEA Clean Coal Centre - UK
- Commonwealth Bank - Australia
- Electricity Generating Authority of Thailand
- Minerals Council of Australia
- Mjunction Services Limited - India
- LBH Netherlands Bv - Netherlands
- Chamber of Mines of South Africa
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- CIMB Investment Bank - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- London Commodity Brokers - England
- PTC India Limited - India
- Sarangani Energy Corporation, Philippines
- Posco Energy - South Korea
- Cigading International Bulk Terminal - Indonesia
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Kepco SPC Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Indika Energy - Indonesia
- White Energy Company Limited
- Straits Asia Resources Limited - Singapore
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- Siam City Cement PLC, Thailand
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- Thiess Contractors Indonesia
- Chettinad Cement Corporation Ltd - India
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- Altura Mining Limited, Indonesia
- Metalloyd Limited - United Kingdom
- The Treasury - Australian Government
- Aditya Birla Group - India
- Rashtriya Ispat Nigam Limited - India
- Semirara Mining and Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
- Bulk Trading Sa - Switzerland
- Price Waterhouse Coopers - Russia
- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Antam Resourcindo - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bhoruka Overseas - Indonesia
- Videocon Industries ltd - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Marubeni Corporation - India
- Ind-Barath Power Infra Limited - India
- Coastal Gujarat Power Limited - India
- Heidelberg Cement - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Petron Corporation, Philippines
- Siam City Cement - Thailand
- Tata Chemicals Ltd - India
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Alfred C Toepfer International GmbH - Germany
- Sakthi Sugars Limited - India
- Energy Link Ltd, New Zealand
- Iligan Light & Power Inc, Philippines
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- Goldman Sachs - Singapore
- Meralco Power Generation, Philippines
- Parry Sugars Refinery, India
- Holcim Trading Pte Ltd - Singapore
- Formosa Plastics Group - Taiwan
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Tamil Nadu electricity Board
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- Binh Thuan Hamico - Vietnam
- Indo Tambangraya Megah - Indonesia
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- GMR Energy Limited - India
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- PNOC Exploration Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Barasentosa Lestari - Indonesia
- Lanco Infratech Ltd - India
- Central Electricity Authority - India
- Orica Mining Services - Indonesia
- Port Waratah Coal Services - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Parliament of New Zealand
- Baramulti Group, Indonesia
- South Luzon Thermal Energy Corporation
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- Asmin Koalindo Tuhup - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Carbofer General Trading SA - India
- Savvy Resources Ltd - HongKong
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- ASAPP Information Group - India
- Semirara Mining Corp, Philippines
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- Ambuja Cements Ltd - India
- PowerSource Philippines DevCo
- Renaissance Capital - South Africa
- Essar Steel Hazira Ltd - India
- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Singapore Mercantile Exchange
- The State Trading Corporation of India Ltd
- Globalindo Alam Lestari - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Trasteel International SA, Italy
- Anglo American - United Kingdom
- Karaikal Port Pvt Ltd - India
- Romanian Commodities Exchange
- SMC Global Power, Philippines
- Economic Council, Georgia
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Global Coal Blending Company Limited - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Sree Jayajothi Cements Limited - India
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Bharathi Cement Corporation - India
- Australian Commodity Traders Exchange
- Kobexindo Tractors - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Wilmar Investment Holdings
- McConnell Dowell - Australia
- The University of Queensland
- Wood Mackenzie - Singapore
- Coalindo Energy - Indonesia
- Vedanta Resources Plc - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Global Green Power PLC Corporation, Philippines
- Gujarat Sidhee Cement - India
|
| |
| |
|
