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, 08 October 18
KOMIPO INVITES BIDS FOR 520,000 TONS OF COLOMBIAN ORIGIN OF 5,700 NAR COAL
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a tender for 520,000 MT of min. 5700 NAR coal of Colombian origin ...
Sunday, 07 October 18
SUPRAMAX: INDO-INDIA USUAL COAL RUNS WERE COVERED AT US$ 12K - FEARNLEYS
Capesize
Average daily earnings up close to 15 pct in 5 trading days, thus patience finally paying off for owners of the big ships - Chinese play ...
Sunday, 07 October 18
A CASE FOR 20/20 VISION? IMO'S LOW SULPHUR FUEL LIMIT UNDER MARPOL ANNEX VI WHICH COMES INTO FORCE ON 1ST JANUARY 2020
KNOWLEDGE TO ELEVATE
The implementation of the global 0.5% sulphur cap for bunker fuel under MARPOL Annex VI in just under 18 months’ ti ...
Friday, 05 October 18
COAL PRODUCTION REACHES 64% OF 2018 TARGET : THE JAKARTA POST
National coal production up to August has already reached 311 million tons, or 64 percent of this year's total target of 485 million tons, acco ...
Wednesday, 03 October 18
VALUE OF AUSTRALIAN COAL EXPORTS TIPPED TO DECLINE SHARPLY OVER NEXT 18 MONTHS - THE GUARDIAN
Thermal coal prices forecast to drop 25% and metallurgical coal prices 23% as value of iron ore exports also falls
The value of Aust ...
|
|
|
Showing 1596 to 1600 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Timah Investasi Mineral - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Directorate General of MIneral and Coal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- The University of Queensland
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- PTC India Limited - India
- Kideco Jaya Agung - Indonesia
- Parry Sugars Refinery, India
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Siam City Cement - Thailand
- Essar Steel Hazira Ltd - India
- Power Finance Corporation Ltd., India
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- Kartika Selabumi Mining - Indonesia
- Borneo Indobara - Indonesia
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Ambuja Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- International Coal Ventures Pvt Ltd - India
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Electricity Authority, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Altura Mining Limited, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Aboitiz Power Corporation - Philippines
- The Treasury - Australian Government
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- Bayan Resources Tbk. - Indonesia
- Latin American Coal - Colombia
- European Bulk Services B.V. - Netherlands
- Coal and Oil Company - UAE
- Australian Coal Association
- Interocean Group of Companies - India
- Holcim Trading Pte Ltd - Singapore
- Karaikal Port Pvt Ltd - India
- MS Steel International - UAE
- Central Java Power - Indonesia
- Mintek Dendrill Indonesia
- Mercator Lines Limited - India
- Orica Australia Pty. Ltd.
- PNOC Exploration Corporation - Philippines
- McConnell Dowell - Australia
- Energy Link Ltd, New Zealand
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Mjunction Services Limited - India
- Simpson Spence & Young - Indonesia
- Indogreen Group - Indonesia
- Romanian Commodities Exchange
- Posco Energy - South Korea
- Therma Luzon, Inc, Philippines
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Kobexindo Tractors - Indoneisa
- TeaM Sual Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Madhucon Powers Ltd - India
- Bhoruka Overseas - Indonesia
- Price Waterhouse Coopers - Russia
- Cement Manufacturers Association - India
- Kumho Petrochemical, South Korea
- SN Aboitiz Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Marubeni Corporation - India
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Pendopo Energi Batubara - Indonesia
- Aditya Birla Group - India
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- Krishnapatnam Port Company Ltd. - India
- Commonwealth Bank - Australia
- Georgia Ports Authority, United States
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- PowerSource Philippines DevCo
- Xindia Steels Limited - India
- Metalloyd Limited - United Kingdom
- Larsen & Toubro Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Mines - Canada
- Semirara Mining and Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Uttam Galva Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Indian Energy Exchange, India
- Planning Commission, India
- San Jose City I Power Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Trasteel International SA, Italy
- Baramulti Group, Indonesia
- Medco Energi Mining Internasional
- Petron Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Savvy Resources Ltd - HongKong
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Sree Jayajothi Cements Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dalmia Cement Bharat India
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Ind-Barath Power Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Thiess Contractors Indonesia
- Port Waratah Coal Services - Australia
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- AsiaOL BioFuels Corp., Philippines
- Kapuas Tunggal Persada - Indonesia
- LBH Netherlands Bv - Netherlands
- Sakthi Sugars Limited - India
- Bhatia International Limited - India
- Kaltim Prima Coal - Indonesia
- Electricity Generating Authority of Thailand
- Singapore Mercantile Exchange
- Economic Council, Georgia
- Vedanta Resources Plc - India
- VISA Power Limited - India
- Siam City Cement PLC, Thailand
- GAC Shipping (India) Pvt Ltd
- Oldendorff Carriers - Singapore
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- Sindya Power Generating Company Private Ltd
- Mercuria Energy - Indonesia
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- White Energy Company Limited
- Tamil Nadu electricity Board
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Minerals Council of Australia
- Eastern Coal Council - USA
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Bukit Makmur.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Heidelberg Cement - Germany
- Samtan Co., Ltd - South Korea
- Indian Oil Corporation Limited
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Attock Cement Pakistan Limited
- Indo Tambangraya Megah - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Goldman Sachs - Singapore
- Coastal Gujarat Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Independent Power Producers Association of India
- Kalimantan Lumbung Energi - Indonesia
- Australian Commodity Traders Exchange
- Carbofer General Trading SA - India
- Lanco Infratech Ltd - India
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Riau Bara Harum - Indonesia
- Straits Asia Resources Limited - Singapore
- Ministry of Finance - Indonesia
- South Luzon Thermal Energy Corporation
- GMR Energy Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Antam Resourcindo - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate Of Revenue Intelligence - India
|
| |
| |
|
