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, 15 October 19
INDIA READIES POLICY TO ATTRACT FOREIGN INVESTMENT IN COAL MINING - REUTERS
India expects to have formulated a policy within the next two weeks to attract foreign investment to its coal mining industry, the country's Co ...
Monday, 14 October 19
WINTER OIL MARKET OUTLOOK - OPEC
Product markets in the last two months have benefitted from seasonal maintenance which have led to a tighter product market environment, providing ...
Sunday, 13 October 19
INDONESIA: PANAMAX VESSELS OPEN SOUTH CHINA WERE REPORTEDLY FIXED AT $14,000 LEVEL, WITH REDELIVERY BACK IN CHINA - BALTIC BRIEFING
Capesize
The Capesize market managed to find a floor and rally a little this week after several weeks of declines. While the West Australia to ...
Friday, 11 October 19
INDIAN MINERS REJECT PLAN TO LINK NATIONAL COAL INDEX TO FOREIGN PRICES - REUTERS
India’s miners are rejecting a government proposal to establish a national coal index that would be linked to international prices, documents ...
Friday, 11 October 19
THE OCTOBER BENCHMARK PRICE OF INDONESIAN THERMAL COAL DECLINES TO LOWEST SINCE OCTOBER 2016
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...
|
|
|
Showing 1316 to 1320 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Kapuas Tunggal Persada - Indonesia
- Bukit Makmur.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Kumho Petrochemical, South Korea
- VISA Power Limited - India
- Aditya Birla Group - India
- Rashtriya Ispat Nigam Limited - India
- Energy Development Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Africa Commodities Group - South Africa
- South Luzon Thermal Energy Corporation
- Marubeni Corporation - India
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Borneo Indobara - Indonesia
- The University of Queensland
- Renaissance Capital - South Africa
- Binh Thuan Hamico - Vietnam
- Karaikal Port Pvt Ltd - India
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- Makarim & Taira - Indonesia
- Oldendorff Carriers - Singapore
- Romanian Commodities Exchange
- Tata Chemicals Ltd - India
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
- Mintek Dendrill Indonesia
- Intertek Mineral Services - Indonesia
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- ASAPP Information Group - India
- Wilmar Investment Holdings
- Global Business Power Corporation, Philippines
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- IEA Clean Coal Centre - UK
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Ceylon Electricity Board - Sri Lanka
- Videocon Industries ltd - India
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Semirara Mining Corp, Philippines
- Independent Power Producers Association of India
- Chamber of Mines of South Africa
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Minerals Council of Australia
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Port Waratah Coal Services - Australia
- Sree Jayajothi Cements Limited - India
- The Treasury - Australian Government
- Gujarat Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Alfred C Toepfer International GmbH - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Edison Trading Spa - Italy
- Sinarmas Energy and Mining - Indonesia
- Petron Corporation, Philippines
- Mjunction Services Limited - India
- New Zealand Coal & Carbon
- Bukit Asam (Persero) Tbk - Indonesia
- Dalmia Cement Bharat India
- Ministry of Transport, Egypt
- Georgia Ports Authority, United States
- Price Waterhouse Coopers - Russia
- Anglo American - United Kingdom
- Rio Tinto Coal - Australia
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Siam City Cement PLC, Thailand
- Karbindo Abesyapradhi - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Madhucon Powers Ltd - India
- Planning Commission, India
- Goldman Sachs - Singapore
- MS Steel International - UAE
- Simpson Spence & Young - Indonesia
- Standard Chartered Bank - UAE
- Pendopo Energi Batubara - Indonesia
- Heidelberg Cement - Germany
- Bhushan Steel Limited - India
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Eastern Coal Council - USA
- Siam City Cement - Thailand
- Iligan Light & Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Samtan Co., Ltd - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Lanco Infratech Ltd - India
- Coalindo Energy - Indonesia
- Attock Cement Pakistan Limited
- Indian Energy Exchange, India
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Kobexindo Tractors - Indoneisa
- London Commodity Brokers - England
- Pipit Mutiara Jaya. PT, Indonesia
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Therma Luzon, Inc, Philippines
- Star Paper Mills Limited - India
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- OPG Power Generation Pvt Ltd - India
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- Parry Sugars Refinery, India
- Uttam Galva Steels Limited - India
- Mercator Lines Limited - India
- Cement Manufacturers Association - India
- European Bulk Services B.V. - Netherlands
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Holcim Trading Pte Ltd - Singapore
- Australian Commodity Traders Exchange
- Australian Coal Association
- Orica Mining Services - Indonesia
- Bhoruka Overseas - Indonesia
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- SMC Global Power, Philippines
- Banpu Public Company Limited - Thailand
- Interocean Group of Companies - India
- Gujarat Sidhee Cement - India
- Meralco Power Generation, Philippines
- Indian Oil Corporation Limited
- Aboitiz Power Corporation - Philippines
- PTC India Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Singapore Mercantile Exchange
- India Bulls Power Limited - India
- Baramulti Group, Indonesia
- Wood Mackenzie - Singapore
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- Carbofer General Trading SA - India
- GMR Energy Limited - India
- Bulk Trading Sa - Switzerland
- PetroVietnam Power Coal Import and Supply Company
- Directorate Of Revenue Intelligence - India
- Sojitz Corporation - Japan
- Toyota Tsusho Corporation, Japan
- Energy Link Ltd, New Zealand
- Orica Australia Pty. Ltd.
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Chettinad Cement Corporation Ltd - India
- Metalloyd Limited - United Kingdom
- Salva Resources Pvt Ltd - India
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Trasteel International SA, Italy
- Eastern Energy - Thailand
- Coastal Gujarat Power Limited - India
- Posco Energy - South Korea
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Indonesian Coal Mining Association
- International Coal Ventures Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Kideco Jaya Agung - Indonesia
- Bayan Resources Tbk. - Indonesia
- Neyveli Lignite Corporation Ltd, - India
|
| |
| |
|
