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, 16 December 19
THE OUTLOOK FOR U.S. THERMAL COAL IS INCREASINGLY STRESSED - MOODY'S
- Slowing global economic growth, trade tensions will continue to exert influence
- Coal's secular decline will persist in 2020
...
Thursday, 12 December 19
KOWEPO INVITING BIDS FOR 2.28 MILLION TONS OF MIN.4,400 NCV COAL
COALspot.com: South Korea’s Korea Western Power Co., Ltd. (KOWEPO) has issued an international tender for total 2,280,000 tons of (Sub) Bitum ...
Wednesday, 11 December 19
PANAMAX: THE MARKET REMAINED FIRM IN THE PACIFIC, WITH INCREASED ACTIVITY NOTED IN KEY AREAS, SUCH AS INDONESIA - ALLIED
Capesize – Positive momentum was resumed this past week, with earnings mak-ing some gains once again. This rising pattern was reflected in th ...
Tuesday, 10 December 19
PREPARATIONS INTENSIFY AS IMO 2020 GLOBAL SULPHUR CAP LOOMS - STANDARD CLUB
With less than a month to go for the impending IMO 2020 global sulphur cap, the club has started witnessing dispute cases relating to the measureme ...
Monday, 09 December 19
KOREA SOUTHERN POWER CO LTD IS INVITING OFFERS FOR MIN 3700 NCV COAL
COALspot.com: South Korea’s Korea East-West Power Co. Ltd has issued an international tender for 160,000 Tons steam coal.
Acco ...
|
|
|
Showing 1246 to 1250 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- PetroVietnam Power Coal Import and Supply Company
- Toyota Tsusho Corporation, Japan
- GVK Power & Infra Limited - India
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Orica Mining Services - Indonesia
- Tamil Nadu electricity Board
- Australian Commodity Traders Exchange
- Leighton Contractors Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Heidelberg Cement - Germany
- LBH Netherlands Bv - Netherlands
- Ambuja Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Wood Mackenzie - Singapore
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- International Coal Ventures Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Medco Energi Mining Internasional
- White Energy Company Limited
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- Ministry of Mines - Canada
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Timah Investasi Mineral - Indoneisa
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Madhucon Powers Ltd - India
- Savvy Resources Ltd - HongKong
- Oldendorff Carriers - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Gujarat Sidhee Cement - India
- Essar Steel Hazira Ltd - India
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- Xindia Steels Limited - India
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- Billiton Holdings Pty Ltd - Australia
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- CNBM International Corporation - China
- Interocean Group of Companies - India
- Antam Resourcindo - Indonesia
- Jindal Steel & Power Ltd - India
- Baramulti Group, Indonesia
- Sical Logistics Limited - India
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Eastern Energy - Thailand
- Ind-Barath Power Infra Limited - India
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Rio Tinto Coal - Australia
- Sojitz Corporation - Japan
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Wilmar Investment Holdings
- Marubeni Corporation - India
- Siam City Cement PLC, Thailand
- Barasentosa Lestari - Indonesia
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Energy Link Ltd, New Zealand
- Trasteel International SA, Italy
- Eastern Coal Council - USA
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- GN Power Mariveles Coal Plant, Philippines
- Grasim Industreis Ltd - India
- Kepco SPC Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Borneo Indobara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- Formosa Plastics Group - Taiwan
- Globalindo Alam Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bhatia International Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Edison Trading Spa - Italy
- Tata Chemicals Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- Alfred C Toepfer International GmbH - Germany
- Sarangani Energy Corporation, Philippines
- Vedanta Resources Plc - India
- Merrill Lynch Commodities Europe
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement - Thailand
- Mercuria Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Salva Resources Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Metalloyd Limited - United Kingdom
- Binh Thuan Hamico - Vietnam
- South Luzon Thermal Energy Corporation
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- European Bulk Services B.V. - Netherlands
- Coal and Oil Company - UAE
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- Indian Oil Corporation Limited
- ASAPP Information Group - India
- India Bulls Power Limited - India
- MS Steel International - UAE
- Parliament of New Zealand
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- The University of Queensland
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- Agrawal Coal Company - India
- Planning Commission, India
- Central Java Power - Indonesia
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Bhushan Steel Limited - India
- Mjunction Services Limited - India
- Larsen & Toubro Limited - India
- Mercator Lines Limited - India
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
- VISA Power Limited - India
- Parry Sugars Refinery, India
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- McConnell Dowell - Australia
- Chamber of Mines of South Africa
- Attock Cement Pakistan Limited
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- OPG Power Generation Pvt Ltd - India
- Romanian Commodities Exchange
- Manunggal Multi Energi - Indonesia
- Sakthi Sugars Limited - India
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Kartika Selabumi Mining - Indonesia
- Iligan Light & Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Independent Power Producers Association of India
- Videocon Industries ltd - India
- Australian Coal Association
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Price Waterhouse Coopers - Russia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mintek Dendrill Indonesia
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- Bulk Trading Sa - Switzerland
- PTC India Limited - India
- Intertek Mineral Services - Indonesia
- PowerSource Philippines DevCo
- Meralco Power Generation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- London Commodity Brokers - England
|
| |
| |
|
