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.
|
|
Monday, 07 March 16
INDONESIAN 5700 GAR COAL INDEX DECLINE $0.05 A TON WEEK OVER WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin decline 0.28 percent week over week to averaging $38.66 per ton on this past Friday, ...
Monday, 07 March 16
FREIGHT MARKET MOVING POSITIVE; ALL SEGMENTS EXCEPT CAPE SHOWING A FIRM TREND
COALspot.com: The freight market was steady this past week and showing a firm trend for all segments except for Cape index.
The Baltic Dry Ind ...
Friday, 04 March 16
GLOBAL ECONOMY'S JITTERS ARE SLOWING DOWN SHIPPING EVEN FURTHER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The global economy’s shaky condition to say the least is now hampering growth and as a result demand for shipping is slowing down, something ...
Friday, 04 March 16
U.S. YEAR-TO-DATE COAL PRODUCTION TOTALED 109.3 MMST; 30.2% LOWER THAN THE COMPARABLE YEAR-TO-DATE COAL PRODUCTION IN 2015 - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 13.1 million shor ...
Thursday, 03 March 16
INDIA'S BUDGET NOT ENOUGH TO BOOST STEELMAKERS' PROFITABILITY - FITCH RATINGS
COALspot.com: Fitch Ratings says that increase in proposed infrastructure spending in India's latest government budget is unlikely to provide a ...
|
|
|
Showing 2536 to 2540 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Kumho Petrochemical, South Korea
- Australian Commodity Traders Exchange
- Thiess Contractors Indonesia
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- Australian Coal Association
- Gujarat Mineral Development Corp Ltd - India
- Wilmar Investment Holdings
- Pipit Mutiara Jaya. PT, Indonesia
- Bayan Resources Tbk. - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- London Commodity Brokers - England
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- Star Paper Mills Limited - India
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- McConnell Dowell - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Manunggal Multi Energi - Indonesia
- Mjunction Services Limited - India
- Salva Resources Pvt Ltd - India
- SMC Global Power, Philippines
- Meenaskhi Energy Private Limited - India
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Central Electricity Authority - India
- Central Java Power - Indonesia
- The University of Queensland
- Aboitiz Power Corporation - Philippines
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- VISA Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Vizag Seaport Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- The State Trading Corporation of India Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Wood Mackenzie - Singapore
- LBH Netherlands Bv - Netherlands
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Kaltim Prima Coal - Indonesia
- ASAPP Information Group - India
- ICICI Bank Limited - India
- White Energy Company Limited
- Bharathi Cement Corporation - India
- Global Coal Blending Company Limited - Australia
- Tamil Nadu electricity Board
- Deloitte Consulting - India
- Sree Jayajothi Cements Limited - India
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Miang Besar Coal Terminal - Indonesia
- CNBM International Corporation - China
- Cement Manufacturers Association - India
- Energy Development Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Dalmia Cement Bharat India
- GMR Energy Limited - India
- Indogreen Group - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Larsen & Toubro Limited - India
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Meralco Power Generation, Philippines
- Banpu Public Company Limited - Thailand
- Economic Council, Georgia
- Agrawal Coal Company - India
- Price Waterhouse Coopers - Russia
- Metalloyd Limited - United Kingdom
- Energy Link Ltd, New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- IHS Mccloskey Coal Group - USA
- SMG Consultants - Indonesia
- Binh Thuan Hamico - Vietnam
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Sindya Power Generating Company Private Ltd
- PTC India Limited - India
- Bhoruka Overseas - Indonesia
- Xindia Steels Limited - India
- The Treasury - Australian Government
- Mercuria Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Ministry of Mines - Canada
- Parliament of New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Kartika Selabumi Mining - Indonesia
- Thai Mozambique Logistica
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Merrill Lynch Commodities Europe
- Karaikal Port Pvt Ltd - India
- Goldman Sachs - Singapore
- Eastern Energy - Thailand
- Oldendorff Carriers - Singapore
- Makarim & Taira - Indonesia
- Borneo Indobara - Indonesia
- GVK Power & Infra Limited - India
- Gujarat Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Chamber of Mines of South Africa
- Kobexindo Tractors - Indoneisa
- Malabar Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Sical Logistics Limited - India
- Holcim Trading Pte Ltd - Singapore
- Antam Resourcindo - Indonesia
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Savvy Resources Ltd - HongKong
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Global Green Power PLC Corporation, Philippines
- Mercator Lines Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Edison Trading Spa - Italy
- Coal and Oil Company - UAE
- Madhucon Powers Ltd - India
- Coalindo Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- Planning Commission, India
- Uttam Galva Steels Limited - India
- MS Steel International - UAE
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Independent Power Producers Association of India
- Iligan Light & Power Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Baramulti Group, Indonesia
- Attock Cement Pakistan Limited
- Maheswari Brothers Coal Limited - India
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- Kideco Jaya Agung - Indonesia
- Kepco SPC Power Corporation, Philippines
- Mintek Dendrill Indonesia
- San Jose City I Power Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- IEA Clean Coal Centre - UK
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- Rio Tinto Coal - Australia
- Altura Mining Limited, Indonesia
- Indika Energy - Indonesia
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Heidelberg Cement - Germany
- PNOC Exploration Corporation - Philippines
- Orica Mining Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Marubeni Corporation - India
- Semirara Mining Corp, Philippines
- Anglo American - United Kingdom
- Commonwealth Bank - Australia
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- Vedanta Resources Plc - India
- Medco Energi Mining Internasional
- Romanian Commodities Exchange
- OPG Power Generation Pvt Ltd - India
- Sakthi Sugars Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement - Thailand
|
| |
| |
|
