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.
|
|
Wednesday, 14 February 18
HISTORY REPEATING ITSELF? - IEA
This month’s OMR is abbreviated to allow time for us to complete our annual five-year outlook that will be published in our report Oil 2018 o ...
Wednesday, 14 February 18
SHIPPING MARKET INSIGHT - NASSOS SOULAKIS
The second month of the year is traditionally a particularly interesting one for the shipping industry as a whole and even more importantly for the ...
Monday, 12 February 18
PANAMAX: WITH LIMITED FRESH ENQUIRY IN ALL AREAS, SPOT MARKET RATES DRIFTED LOWER THROUGHOUT THE WEEK - BALTIC BRIEFING
Capesize
A switch to the Atlantic with rates firming as charterers seemed keen to fix and tonnage was tight, prompting a recovery in rates. Trans ...
Monday, 12 February 18
WORLDWIDE: 'DEMURRAGE CLAIMS' FOR THE PURPOSES OF DOCUMENTARY TIME BARS
KNOWLEDGE TO ELEVATE
On 2 February 2018 the Commercial Court allowed an appeal from a decision of the Arbitration Tribunal in Lukoil Asia Paci ...
Saturday, 10 February 18
COAL INDIA ON PATH OF SUSTAINABLE PRODUCTION GROWTH AND SUPPLY TO POWER AND NON POWER SECTOR - PIB
Supply of 371.8 MT of Coal to Power Sector and 103.1 MT Coal to Non-Power Sector Achieved in 2017-18 Till January,2018 Average Rake Loading To The ...
|
|
|
Showing 1806 to 1810 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- New Zealand Coal & Carbon
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Global Coal Blending Company Limited - Australia
- Maharashtra Electricity Regulatory Commission - India
- Indika Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Straits Asia Resources Limited - Singapore
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- Aditya Birla Group - India
- Sical Logistics Limited - India
- The Treasury - Australian Government
- Directorate General of MIneral and Coal - Indonesia
- Vedanta Resources Plc - India
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- Leighton Contractors Pty Ltd - Australia
- Carbofer General Trading SA - India
- Chettinad Cement Corporation Ltd - India
- Indonesian Coal Mining Association
- Bukit Asam (Persero) Tbk - Indonesia
- Thai Mozambique Logistica
- Bangladesh Power Developement Board
- San Jose City I Power Corp, Philippines
- Commonwealth Bank - Australia
- Bukit Baiduri Energy - Indonesia
- Heidelberg Cement - Germany
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Port Waratah Coal Services - Australia
- CIMB Investment Bank - Malaysia
- Indo Tambangraya Megah - Indonesia
- Central Java Power - Indonesia
- Barasentosa Lestari - Indonesia
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Sindya Power Generating Company Private Ltd
- SMC Global Power, Philippines
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Bhushan Steel Limited - India
- Wood Mackenzie - Singapore
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Bayan Resources Tbk. - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- Billiton Holdings Pty Ltd - Australia
- Indogreen Group - Indonesia
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
- Jaiprakash Power Ventures ltd
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- European Bulk Services B.V. - Netherlands
- Metalloyd Limited - United Kingdom
- Bhoruka Overseas - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mintek Dendrill Indonesia
- Minerals Council of Australia
- Standard Chartered Bank - UAE
- The University of Queensland
- Sojitz Corporation - Japan
- Sakthi Sugars Limited - India
- GMR Energy Limited - India
- Ind-Barath Power Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- PowerSource Philippines DevCo
- Bukit Makmur.PT - Indonesia
- McConnell Dowell - Australia
- Chamber of Mines of South Africa
- Medco Energi Mining Internasional
- Jindal Steel & Power Ltd - India
- Bhatia International Limited - India
- SMG Consultants - Indonesia
- VISA Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Pendopo Energi Batubara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- Edison Trading Spa - Italy
- Ministry of Transport, Egypt
- Holcim Trading Pte Ltd - Singapore
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Agrawal Coal Company - India
- PTC India Limited - India
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Meenaskhi Energy Private Limited - India
- Videocon Industries ltd - India
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Indian Energy Exchange, India
- Directorate Of Revenue Intelligence - India
- Orica Australia Pty. Ltd.
- Mjunction Services Limited - India
- LBH Netherlands Bv - Netherlands
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dalmia Cement Bharat India
- Ambuja Cements Ltd - India
- Larsen & Toubro Limited - India
- Star Paper Mills Limited - India
- Coalindo Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Marubeni Corporation - India
- Salva Resources Pvt Ltd - India
- Madhucon Powers Ltd - India
- Planning Commission, India
- Semirara Mining and Power Corporation, Philippines
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Coal and Oil Company - UAE
- Orica Mining Services - Indonesia
- Thiess Contractors Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Power Finance Corporation Ltd., India
- Miang Besar Coal Terminal - Indonesia
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Antam Resourcindo - Indonesia
- South Luzon Thermal Energy Corporation
- Ministry of Finance - Indonesia
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- GVK Power & Infra Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- TeaM Sual Corporation - Philippines
- Merrill Lynch Commodities Europe
- Baramulti Group, Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement - Thailand
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- Grasim Industreis Ltd - India
- Posco Energy - South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Attock Cement Pakistan Limited
- Australian Commodity Traders Exchange
- Intertek Mineral Services - Indonesia
- CNBM International Corporation - China
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- White Energy Company Limited
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- Kaltim Prima Coal - Indonesia
- ICICI Bank Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Energy Link Ltd, New Zealand
- Malabar Cements Ltd - India
- Anglo American - United Kingdom
- Timah Investasi Mineral - Indoneisa
- PNOC Exploration Corporation - Philippines
- Electricity Authority, New Zealand
- Aboitiz Power Corporation - Philippines
- Trasteel International SA, Italy
- Australian Coal Association
- SN Aboitiz Power Inc, Philippines
- Deloitte Consulting - India
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- India Bulls Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Parry Sugars Refinery, India
- Kumho Petrochemical, South Korea
- Uttam Galva Steels Limited - India
- Cement Manufacturers Association - India
- MS Steel International - UAE
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Sidhee Cement - India
- Globalindo Alam Lestari - Indonesia
- Independent Power Producers Association of India
- Price Waterhouse Coopers - Russia
- Eastern Coal Council - USA
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Electricity Regulatory Commission - India
- Economic Council, Georgia
- Siam City Cement PLC, Thailand
|
| |
| |
|
