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.
|
|
Saturday, 07 December 19
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Saturday, 07 December 19
SOUTH AFRICAN COAL PRICE SURGE, WHILE OTHERS LANGUISH, IS TROUBLING - REUTERS
Coal prices around the world are gently sliding as demand from top importers such as China, India and even Europe remains subdued amid a so far mil ...
Saturday, 07 December 19
SUPRAMAX: OVERALL, THE BALTIC SUPRAMAX INDEX REMAINED IN POSITIVE MODE, DESPITE SOME AREAS LACKING FRESH ACTIVITY - BALTIC BRIEFING
Capesize
This week the Capesize market maintained healthy earnings, as an end of year surge took the Capesize 5TC back up to $25,202 by mid-wee ...
Friday, 06 December 19
INDONESIA COAL BENCHMARK PRICE FOR DECEMBER INCREASES BY US 3 CENTS MOM
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...
Thursday, 05 December 19
IMO 2020 IS ABOUT TO GET REAL - GAVIN THOMPSON
As I write this edition of the APAC Energy Buzz from my desk in Singapore I can see ships. Lots of ships. No surprise given that Singapore is among ...
|
|
|
Showing 1251 to 1255 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Eastern Coal Council - USA
- Indogreen Group - Indonesia
- Jindal Steel & Power Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- Tamil Nadu electricity Board
- Directorate General of MIneral and Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Barasentosa Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- ICICI Bank Limited - India
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coal and Oil Company - UAE
- CIMB Investment Bank - Malaysia
- GVK Power & Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Mercuria Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Coalindo Energy - Indonesia
- Eastern Energy - Thailand
- Interocean Group of Companies - India
- Electricity Authority, New Zealand
- Banpu Public Company Limited - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Meenaskhi Energy Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- Star Paper Mills Limited - India
- GMR Energy Limited - India
- McConnell Dowell - Australia
- IEA Clean Coal Centre - UK
- Bulk Trading Sa - Switzerland
- Kepco SPC Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Vedanta Resources Plc - India
- Altura Mining Limited, Indonesia
- SN Aboitiz Power Inc, Philippines
- Georgia Ports Authority, United States
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- The Treasury - Australian Government
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Coastal Gujarat Power Limited - India
- Indika Energy - Indonesia
- New Zealand Coal & Carbon
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- MS Steel International - UAE
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sindya Power Generating Company Private Ltd
- PowerSource Philippines DevCo
- Romanian Commodities Exchange
- Makarim & Taira - Indonesia
- Sree Jayajothi Cements Limited - India
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- Samtan Co., Ltd - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Salva Resources Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Ministry of Mines - Canada
- Planning Commission, India
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- Uttam Galva Steels Limited - India
- Vizag Seaport Private Limited - India
- Ministry of Finance - Indonesia
- Manunggal Multi Energi - Indonesia
- CNBM International Corporation - China
- Deloitte Consulting - India
- Sical Logistics Limited - India
- Semirara Mining and Power Corporation, Philippines
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- Edison Trading Spa - Italy
- Commonwealth Bank - Australia
- Global Coal Blending Company Limited - Australia
- Mjunction Services Limited - India
- Miang Besar Coal Terminal - Indonesia
- Mintek Dendrill Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Mineral Development Corp Ltd - India
- The State Trading Corporation of India Ltd
- Wood Mackenzie - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- Parry Sugars Refinery, India
- PNOC Exploration Corporation - Philippines
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Aboitiz Power Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Simpson Spence & Young - Indonesia
- International Coal Ventures Pvt Ltd - India
- Antam Resourcindo - Indonesia
- SMG Consultants - Indonesia
- Heidelberg Cement - Germany
- Maharashtra Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Larsen & Toubro Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Wilmar Investment Holdings
- Bukit Asam (Persero) Tbk - Indonesia
- Tata Chemicals Ltd - India
- Metalloyd Limited - United Kingdom
- Timah Investasi Mineral - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Bangladesh Power Developement Board
- Kartika Selabumi Mining - Indonesia
- Indonesian Coal Mining Association
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- Cigading International Bulk Terminal - Indonesia
- India Bulls Power Limited - India
- Australian Coal Association
- Kapuas Tunggal Persada - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- Binh Thuan Hamico - Vietnam
- Kideco Jaya Agung - Indonesia
- Singapore Mercantile Exchange
- Iligan Light & Power Inc, Philippines
- Africa Commodities Group - South Africa
- Holcim Trading Pte Ltd - Singapore
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Indian Energy Exchange, India
- Medco Energi Mining Internasional
- Attock Cement Pakistan Limited
- Chamber of Mines of South Africa
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- Essar Steel Hazira Ltd - India
- Siam City Cement PLC, Thailand
- Borneo Indobara - Indonesia
- Independent Power Producers Association of India
- Sakthi Sugars Limited - India
- Price Waterhouse Coopers - Russia
- Thiess Contractors Indonesia
- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- London Commodity Brokers - England
- Renaissance Capital - South Africa
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- The University of Queensland
- Mercator Lines Limited - India
- Toyota Tsusho Corporation, Japan
- Orica Australia Pty. Ltd.
- Xindia Steels Limited - India
- Anglo American - United Kingdom
- Power Finance Corporation Ltd., India
- Port Waratah Coal Services - Australia
- VISA Power Limited - India
- Thai Mozambique Logistica
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Intertek Mineral Services - Indonesia
- Orica Mining Services - Indonesia
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Economic Council, Georgia
- Posco Energy - South Korea
- Siam City Cement - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Marubeni Corporation - India
- Directorate Of Revenue Intelligence - India
|
| |
| |
|
