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.
|
|
Thursday, 31 March 16
CAPE: ANOTHER UNEVENTFUL WEEK WITH FIXTURES CONCLUDED AT LAST DONE LEVELS - FEARNLEYS
Cape
Another uneventful week with fixtures concluded at last done levels, CS levels remain around the USD 3 mark, whilst C3 is still just short o ...
Wednesday, 30 March 16
MINISTRY OF ENERGY AND MINERAL RESOURCES OF INDONESIA TO REVISE METHODOLOGY TO DETERMINE THE SELLING PRICE OF COAL TO MINE-MOUTH POWER PLANTS
COALspot.com: Ministry of Energy and Mineral Resources (ESDM) of Indonesia to review to revise methodology to determine the selling price of co ...
Wednesday, 30 March 16
VALEMAXES: THE BIGGEST NIGHTMARE OF TODAY'S DRY BULK MARKET - INTERMODAL
At a time that Europe is still dealing with the aftermath of the terrorist attacks in Brussels our society is daily bombarded with news of terroris ...
Tuesday, 29 March 16
BULK CARRIER VENTILATION - CAPTAIN PAUL R. WALTON
KNOWLEDGE TO ELEVATE
Moisture damage is a source of many cargo claims. Claimants allege that it is brought about by the ship’s failure t ...
Monday, 28 March 16
INDONESIAN WEEKLY CS50 COAL INDEX CLOSED SLIGHTLY FIRM; CS 57 INDEX CLOSED WEAK
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.03 percent week over week to averaging $38.91 per ton on this past Thursday, ...
|
|
|
Showing 2501 to 2505 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Semirara Mining Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Orica Mining Services - Indonesia
- India Bulls Power Limited - India
- Siam City Cement - Thailand
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- LBH Netherlands Bv - Netherlands
- Petron Corporation, Philippines
- Central Electricity Authority - India
- Meralco Power Generation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Formosa Plastics Group - Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- CNBM International Corporation - China
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- Bahari Cakrawala Sebuku - Indonesia
- Aditya Birla Group - India
- Kumho Petrochemical, South Korea
- Miang Besar Coal Terminal - Indonesia
- Simpson Spence & Young - Indonesia
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Madhucon Powers Ltd - India
- Vedanta Resources Plc - India
- Leighton Contractors Pty Ltd - Australia
- Electricity Authority, New Zealand
- Lanco Infratech Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Edison Trading Spa - Italy
- Bayan Resources Tbk. - Indonesia
- SN Aboitiz Power Inc, Philippines
- Tamil Nadu electricity Board
- Kobexindo Tractors - Indoneisa
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Borneo Indobara - Indonesia
- Central Java Power - Indonesia
- Energy Link Ltd, New Zealand
- Timah Investasi Mineral - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Indo Tambangraya Megah - Indonesia
- The University of Queensland
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Holcim Trading Pte Ltd - Singapore
- Siam City Cement PLC, Thailand
- Essar Steel Hazira Ltd - India
- Anglo American - United Kingdom
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Riau Bara Harum - Indonesia
- Africa Commodities Group - South Africa
- TeaM Sual Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thai Mozambique Logistica
- Australian Commodity Traders Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- CIMB Investment Bank - Malaysia
- Ministry of Mines - Canada
- Krishnapatnam Port Company Ltd. - India
- Global Coal Blending Company Limited - Australia
- Uttam Galva Steels Limited - India
- Trasteel International SA, Italy
- Cigading International Bulk Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Interocean Group of Companies - India
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- Gujarat Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Medco Energi Mining Internasional
- VISA Power Limited - India
- Binh Thuan Hamico - Vietnam
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- Power Finance Corporation Ltd., India
- Commonwealth Bank - Australia
- ICICI Bank Limited - India
- Mercator Lines Limited - India
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
- Alfred C Toepfer International GmbH - Germany
- Indonesian Coal Mining Association
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Kideco Jaya Agung - Indonesia
- Toyota Tsusho Corporation, Japan
- European Bulk Services B.V. - Netherlands
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- Planning Commission, India
- New Zealand Coal & Carbon
- Singapore Mercantile Exchange
- Deloitte Consulting - India
- Kartika Selabumi Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Ind-Barath Power Infra Limited - India
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Ceylon Electricity Board - Sri Lanka
- Metalloyd Limited - United Kingdom
- Altura Mining Limited, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- Coalindo Energy - Indonesia
- London Commodity Brokers - England
- Australian Coal Association
- Ambuja Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Banpu Public Company Limited - Thailand
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- Sical Logistics Limited - India
- Therma Luzon, Inc, Philippines
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Rashtriya Ispat Nigam Limited - India
- Indika Energy - Indonesia
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Renaissance Capital - South Africa
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vizag Seaport Private Limited - India
- Larsen & Toubro Limited - India
- Grasim Industreis Ltd - India
- The State Trading Corporation of India Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mjunction Services Limited - India
- ASAPP Information Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Intertek Mineral Services - Indonesia
- SMG Consultants - Indonesia
- Wilmar Investment Holdings
- PNOC Exploration Corporation - Philippines
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Sindya Power Generating Company Private Ltd
- Bangladesh Power Developement Board
- Barasentosa Lestari - Indonesia
- Attock Cement Pakistan Limited
- Gujarat Mineral Development Corp Ltd - India
- McConnell Dowell - Australia
- Directorate Of Revenue Intelligence - India
- PTC India Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- GVK Power & Infra Limited - India
- Global Business Power Corporation, Philippines
- Malabar Cements Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- IEA Clean Coal Centre - UK
- White Energy Company Limited
- Kepco SPC Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Maheswari Brothers Coal Limited - India
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Independent Power Producers Association of India
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- Antam Resourcindo - Indonesia
- Salva Resources Pvt Ltd - India
- Parliament of New Zealand
- Gujarat Sidhee Cement - India
- Baramulti Group, Indonesia
- Globalindo Alam Lestari - Indonesia
- Bulk Trading Sa - Switzerland
- San Jose City I Power Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Mercuria Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Sakthi Sugars Limited - India
|
| |
| |
|
