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, 23 September 22
CHINA DIGS DEEP TO RAISE COAL OUTPUT TO RECORD HIGH - REUTERS
China’s coal production has surged this year as the government seeks to improve energy security by reducing dependence on imports and amassin ...
Friday, 23 September 22
EUROPEAN STEEL BUYERS SEEK DIRECTION IN VOLATILE MARKET - MEPS INTERNATIONAL
Demand for steel is slow to recover, after the summer break. Mill production costs continue to increase. Steel purchasers are uncertain about the f ...
Friday, 23 September 22
BUOYANT COAL INDUSTRY SEEKS WAYS TO STAY IN THE LONG-TERM ENERGY MIX - REUTERS
There’s no doubt that the global coal industry has been a major beneficiary of Russia’s invasion of Ukraine and the subsequent energy c ...
Friday, 23 September 22
MARKET INSIGHT - INTERMODAL
In view of the forthcoming winter, Europe is trying to escape from its energy (oil & gas) dependency from Russia to ensure energy abundance eve ...
Tuesday, 20 September 22
CHINA'S DAILY COAL OUTPUT HITS 3-MONTH LOW IN AUGUST ON RAINS, COVID CURBS - REUTERS
China’s daily coal output in August slipped to a three-month low as some mines in its biggest coal mining regions reduced operations or even ...
|
|
|
Showing 226 to 230 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- India Bulls Power Limited - India
- Deloitte Consulting - India
- Gujarat Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Petrochimia International Co. Ltd.- Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhushan Steel Limited - India
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Sidhee Cement - India
- Coastal Gujarat Power Limited - India
- Indogreen Group - Indonesia
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Pendopo Energi Batubara - Indonesia
- Madhucon Powers Ltd - India
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Intertek Mineral Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Commonwealth Bank - Australia
- Semirara Mining Corp, Philippines
- Kumho Petrochemical, South Korea
- Star Paper Mills Limited - India
- Ceylon Electricity Board - Sri Lanka
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- Sical Logistics Limited - India
- South Luzon Thermal Energy Corporation
- White Energy Company Limited
- Sarangani Energy Corporation, Philippines
- Indian Energy Exchange, India
- Ministry of Transport, Egypt
- IHS Mccloskey Coal Group - USA
- Dalmia Cement Bharat India
- Romanian Commodities Exchange
- Sinarmas Energy and Mining - Indonesia
- Port Waratah Coal Services - Australia
- Marubeni Corporation - India
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Interocean Group of Companies - India
- VISA Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Samtan Co., Ltd - South Korea
- Iligan Light & Power Inc, Philippines
- Carbofer General Trading SA - India
- Toyota Tsusho Corporation, Japan
- The University of Queensland
- Goldman Sachs - Singapore
- McConnell Dowell - Australia
- Rio Tinto Coal - Australia
- Mercator Lines Limited - India
- Gujarat Mineral Development Corp Ltd - India
- GAC Shipping (India) Pvt Ltd
- Billiton Holdings Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Price Waterhouse Coopers - Russia
- Ind-Barath Power Infra Limited - India
- Trasteel International SA, Italy
- International Coal Ventures Pvt Ltd - India
- Posco Energy - South Korea
- Economic Council, Georgia
- Larsen & Toubro Limited - India
- Maheswari Brothers Coal Limited - India
- Savvy Resources Ltd - HongKong
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- Baramulti Group, Indonesia
- Timah Investasi Mineral - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Independent Power Producers Association of India
- Siam City Cement PLC, Thailand
- Parliament of New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- SN Aboitiz Power Inc, Philippines
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Videocon Industries ltd - India
- Agrawal Coal Company - India
- Barasentosa Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Aditya Birla Group - India
- The Treasury - Australian Government
- Asmin Koalindo Tuhup - Indonesia
- Directorate Of Revenue Intelligence - India
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Thiess Contractors Indonesia
- OPG Power Generation Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Riau Bara Harum - Indonesia
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- Kartika Selabumi Mining - Indonesia
- Coalindo Energy - Indonesia
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- Power Finance Corporation Ltd., India
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Electricity Authority, New Zealand
- Planning Commission, India
- Africa Commodities Group - South Africa
- Chamber of Mines of South Africa
- Electricity Generating Authority of Thailand
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- Kideco Jaya Agung - Indonesia
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Altura Mining Limited, Indonesia
- Tamil Nadu electricity Board
- Indonesian Coal Mining Association
- San Jose City I Power Corp, Philippines
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- ASAPP Information Group - India
- Petron Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Tata Chemicals Ltd - India
- Metalloyd Limited - United Kingdom
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- ICICI Bank Limited - India
- Oldendorff Carriers - Singapore
- Standard Chartered Bank - UAE
- Karbindo Abesyapradhi - Indoneisa
- Renaissance Capital - South Africa
- Banpu Public Company Limited - Thailand
- Mintek Dendrill Indonesia
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- Central Electricity Authority - India
- Singapore Mercantile Exchange
- Bhoruka Overseas - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Mining Services - Indonesia
- Australian Commodity Traders Exchange
- Sojitz Corporation - Japan
- Indian Oil Corporation Limited
- Globalindo Alam Lestari - Indonesia
- Xindia Steels Limited - India
- Attock Cement Pakistan Limited
- Malabar Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Heidelberg Cement - Germany
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- London Commodity Brokers - England
- Global Business Power Corporation, Philippines
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Meralco Power Generation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Bhatia International Limited - India
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- Bharathi Cement Corporation - India
- IEA Clean Coal Centre - UK
- Directorate General of MIneral and Coal - Indonesia
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- PTC India Limited - India
- CIMB Investment Bank - Malaysia
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- Ministry of Finance - Indonesia
- GVK Power & Infra Limited - India
- MS Steel International - UAE
- Sakthi Sugars Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
|
| |
| |
|
