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.
|
|
Friday, 17 August 18
MALAYSIA'S MANJUNG 4 - WORLD COAL ASSOCIATION
According to the IEA’s Energy Access Outlook 2017 report, nearly all of those who gained access to electricity worldwide in the last 16 years ...
Thursday, 16 August 18
COAL PRODUCTION AT 37.11 PERCENT OF FULL-YEAR TARGET - THE JAKARTA POST
Indonesian coal production was recorded at 180 million tons on Wednesday, or 37.11 percent of the government’s 485 million target this year.
...
Thursday, 16 August 18
OIL MARKET HIGHLIGHTS - OPEC
Crude Oil Price Movements
In July, the OPEC Reference Basket increased marginally by 5¢ m-o-m to settle at $73.27/b. Oil futures saw mixed ...
Tuesday, 14 August 18
THE CAPESIZE MARKET HAS SHOWN A TREMENDOUS COURSE DURING THE PAST 12 MONTHS - THOMAS CHASAPIS
The Capesize market has shown a tremendous course during the past 12 months, having quickly climbed out of the “hole that it had found itself ...
Monday, 13 August 18
A 50,200 DWT FIXED DELIVERY SINGAPORE TRIP VIA INDONESIA REDELIVERY CHINA IN THE LOW $10,000S - THE BALTIC BRIEFING
Capesize
Expectations of a further push in the market were largely unfulfilled last week as rates come under pressure in Asia as the North Atla ...
|
|
|
Showing 1646 to 1650 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Larsen & Toubro Limited - India
- Mintek Dendrill Indonesia
- Mjunction Services Limited - India
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- Vizag Seaport Private Limited - India
- Trasteel International SA, Italy
- Dalmia Cement Bharat India
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Electricity Authority, New Zealand
- International Coal Ventures Pvt Ltd - India
- Chamber of Mines of South Africa
- Kepco SPC Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Alfred C Toepfer International GmbH - Germany
- Parry Sugars Refinery, India
- Pipit Mutiara Jaya. PT, Indonesia
- Central Electricity Authority - India
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- London Commodity Brokers - England
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Thai Mozambique Logistica
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Makarim & Taira - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining Corp, Philippines
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- Ministry of Transport, Egypt
- Indogreen Group - Indonesia
- Port Waratah Coal Services - Australia
- Kapuas Tunggal Persada - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Kartika Selabumi Mining - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- Cigading International Bulk Terminal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- New Zealand Coal & Carbon
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thiess Contractors Indonesia
- Barasentosa Lestari - Indonesia
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- European Bulk Services B.V. - Netherlands
- The University of Queensland
- Romanian Commodities Exchange
- ASAPP Information Group - India
- Tata Chemicals Ltd - India
- IEA Clean Coal Centre - UK
- Carbofer General Trading SA - India
- Heidelberg Cement - Germany
- Globalindo Alam Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Energy Development Corp, Philippines
- Bangladesh Power Developement Board
- Kideco Jaya Agung - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- Anglo American - United Kingdom
- Vijayanagar Sugar Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- Economic Council, Georgia
- Aditya Birla Group - India
- ICICI Bank Limited - India
- Bulk Trading Sa - Switzerland
- Banpu Public Company Limited - Thailand
- Karaikal Port Pvt Ltd - India
- Africa Commodities Group - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ambuja Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Essar Steel Hazira Ltd - India
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Bhatia International Limited - India
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Madhucon Powers Ltd - India
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- MS Steel International - UAE
- GAC Shipping (India) Pvt Ltd
- Oldendorff Carriers - Singapore
- Price Waterhouse Coopers - Russia
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Wood Mackenzie - Singapore
- Vedanta Resources Plc - India
- Kaltim Prima Coal - Indonesia
- Goldman Sachs - Singapore
- Planning Commission, India
- Riau Bara Harum - Indonesia
- Power Finance Corporation Ltd., India
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- Kobexindo Tractors - Indoneisa
- Sojitz Corporation - Japan
- Intertek Mineral Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- The State Trading Corporation of India Ltd
- Savvy Resources Ltd - HongKong
- Neyveli Lignite Corporation Ltd, - India
- Mercator Lines Limited - India
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
- Indo Tambangraya Megah - Indonesia
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- Rio Tinto Coal - Australia
- Maheswari Brothers Coal Limited - India
- Energy Link Ltd, New Zealand
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Indian Energy Exchange, India
- Uttam Galva Steels Limited - India
- Simpson Spence & Young - Indonesia
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- Bukit Asam (Persero) Tbk - Indonesia
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- Meralco Power Generation, Philippines
- GVK Power & Infra Limited - India
- Australian Commodity Traders Exchange
- Lanco Infratech Ltd - India
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Ind-Barath Power Infra Limited - India
- White Energy Company Limited
- Sree Jayajothi Cements Limited - India
- Deloitte Consulting - India
- Straits Asia Resources Limited - Singapore
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Interocean Group of Companies - India
- Ministry of Mines - Canada
- The Treasury - Australian Government
- Singapore Mercantile Exchange
- Sindya Power Generating Company Private Ltd
- Posco Energy - South Korea
- Minerals Council of Australia
- VISA Power Limited - India
- Xindia Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Indika Energy - Indonesia
- India Bulls Power Limited - India
- PTC India Limited - India
- Jindal Steel & Power Ltd - India
- CIMB Investment Bank - Malaysia
- Sical Logistics Limited - India
- Bharathi Cement Corporation - India
- Malabar Cements Ltd - India
- Gujarat Sidhee Cement - India
- Attock Cement Pakistan Limited
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement - Thailand
- Sarangani Energy Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Commonwealth Bank - Australia
- Agrawal Coal Company - India
- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Toyota Tsusho Corporation, Japan
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- Coastal Gujarat Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Marubeni Corporation - India
- Star Paper Mills Limited - India
|
| |
| |
|
