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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
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Friday, 24 March 17
ADARO INDONESIA'S COAL SALES VOLUME INCREASED SLIGHTLY TO 54.1 MILLION TONES IN 2016
COALspot.com: PT. Adaro Indonesia, Indonesia’s second largest coal miner’s sales volume increased slightly to 54.1 million tones (Mt) i ...
Friday, 24 March 17
U.S COAL PRODUCTION ESTIMATE DECLINE 4.4% W/W - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 14.1 million short tons ...
Thursday, 23 March 17
CAPESIZE: TAKING A BREATHER AFTER RALLYING - BUT OUTLOOK FOR WEEKS TO COME NOT SCARY - FEARNLEYS
Supramax
In the Pacific the market seems somewhat slower this week, although healthy rates still being achieved said Fearnleys in its latest week ...
Thursday, 23 March 17
KOREA MIDLAND POWER COMPANY LIMITED INVITES BIDS FOR TOTAL 4.77 MILLION TONS OF BITUMINOUS COAL FOR ITS BORYEONG POWER PLANT
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 2,090,000 Metric Tons of Bituminous coal f ...
Wednesday, 22 March 17
THE DRY BULK MARKET HAS UNDOUBTEDLY REBOUNDED SINCE THE SAME PERIOD LAST YEAR - KONSTANTINOS KONTOMICHIS
The Dry Bulk market has undoubtedly rebounded since the same period last year and currently enjoys healthier freight rates. The positive reversal i ...
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Showing 2091 to 2095 news of total 6871 |
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- Lanco Infratech Ltd - India
- Electricity Authority, New Zealand
- Bhoruka Overseas - Indonesia
- SMC Global Power, Philippines
- Meralco Power Generation, Philippines
- Rashtriya Ispat Nigam Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Chamber of Mines of South Africa
- Dalmia Cement Bharat India
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- Indogreen Group - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- ICICI Bank Limited - India
- Marubeni Corporation - India
- Globalindo Alam Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- White Energy Company Limited
- The Treasury - Australian Government
- Siam City Cement - Thailand
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Vizag Seaport Private Limited - India
- Sindya Power Generating Company Private Ltd
- Thai Mozambique Logistica
- Singapore Mercantile Exchange
- Manunggal Multi Energi - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Indian Oil Corporation Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Interocean Group of Companies - India
- Aditya Birla Group - India
- McConnell Dowell - Australia
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- MS Steel International - UAE
- Merrill Lynch Commodities Europe
- Indonesian Coal Mining Association
- Gujarat Sidhee Cement - India
- Medco Energi Mining Internasional
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- PNOC Exploration Corporation - Philippines
- Cement Manufacturers Association - India
- Xindia Steels Limited - India
- Antam Resourcindo - Indonesia
- PowerSource Philippines DevCo
- European Bulk Services B.V. - Netherlands
- Indian Energy Exchange, India
- Bayan Resources Tbk. - Indonesia
- The University of Queensland
- Ministry of Finance - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- Posco Energy - South Korea
- Parliament of New Zealand
- Kartika Selabumi Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Larsen & Toubro Limited - India
- Anglo American - United Kingdom
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Wilmar Investment Holdings
- Power Finance Corporation Ltd., India
- Iligan Light & Power Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Intertek Mineral Services - Indonesia
- The State Trading Corporation of India Ltd
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Rio Tinto Coal - Australia
- ASAPP Information Group - India
- Formosa Plastics Group - Taiwan
- Kumho Petrochemical, South Korea
- Binh Thuan Hamico - Vietnam
- Bhushan Steel Limited - India
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Straits Asia Resources Limited - Singapore
- Global Green Power PLC Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Electricity Generating Authority of Thailand
- Ambuja Cements Ltd - India
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- Mercator Lines Limited - India
- Mjunction Services Limited - India
- IHS Mccloskey Coal Group - USA
- Videocon Industries ltd - India
- Price Waterhouse Coopers - Russia
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Global Coal Blending Company Limited - Australia
- Maharashtra Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Kepco SPC Power Corporation, Philippines
- Central Java Power - Indonesia
- Thiess Contractors Indonesia
- Essar Steel Hazira Ltd - India
- Goldman Sachs - Singapore
- Planning Commission, India
- Oldendorff Carriers - Singapore
- Deloitte Consulting - India
- New Zealand Coal & Carbon
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Standard Chartered Bank - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- Orica Mining Services - Indonesia
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Star Paper Mills Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Romanian Commodities Exchange
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Simpson Spence & Young - Indonesia
- Eastern Coal Council - USA
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- AsiaOL BioFuels Corp., Philippines
- Krishnapatnam Port Company Ltd. - India
- Mercuria Energy - Indonesia
- Global Business Power Corporation, Philippines
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- Energy Development Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- London Commodity Brokers - England
- SMG Consultants - Indonesia
- Borneo Indobara - Indonesia
- Savvy Resources Ltd - HongKong
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- India Bulls Power Limited - India
- GMR Energy Limited - India
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- Sakthi Sugars Limited - India
- Kobexindo Tractors - Indoneisa
- South Luzon Thermal Energy Corporation
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- Indika Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Barasentosa Lestari - Indonesia
- Independent Power Producers Association of India
- Bhatia International Limited - India
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Indo Tambangraya Megah - Indonesia
- Commonwealth Bank - Australia
- Coal and Oil Company - UAE
- PTC India Limited - India
- Latin American Coal - Colombia
- VISA Power Limited - India
- Uttam Galva Steels Limited - India
- Africa Commodities Group - South Africa
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Kideco Jaya Agung - Indonesia
- Orica Australia Pty. Ltd.
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- Tamil Nadu electricity Board
- Aboitiz Power Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
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