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, 09 June 21
“Counter cyclical investments.” usually take place by investing in a “bad” market at the point that ensures that the acquir ...

Saturday, 05 June 21
KOMIPO INVITED 5600 NAR COAL OFFERS FOR THREE YEARS SUPPLY; 520,000 MT PER YEAR Korea Midland Power Co., Ltd (KOMIPO) has issued an international tender for total 1,560,000 MT of  Bituminous Coal to be used a ...

Saturday, 05 June 21
Fossil gas and nuclear investments risk locking in costly, outdated infrastructure for the long-term   The United States has spent the ...

Friday, 04 June 21
Coal capacity additions face major stranded asset risk Much of India’s 33 gigawatts (GW) of coal-fired power capacity currently under co ...

Thursday, 03 June 21
JUNE HBA IS HITTING ABOVE $100 AND SETTLED AT ITS HIGHEST SINCE OCTOBER 2020 The Indonesia coal price reference for June 2021 settles at US$ 100.33 per ton FOB vessel.    The Indonesia coal pr ...

   1 2 3 4 5   
Showing 11 to 15 news of total 6321
News by Category
Popular News
Total Members : 27,459
User ID
Remember Me
By logging on you accept our TERMS OF USE.
Forgot Password
Our Members Are From ...

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