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, 29 May 15
COAL PRODUCTION IN THE U.S. ALMOST FLAT THIS PAST WEEK
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 16.1 million short ...
Friday, 29 May 15
SOUTH KOREAN STATE-OWNED UTILITY KOREA MIDLAND POWER INVITES BIDS FOR 780K MT OF COAL FOR H2' 15
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to buy total 780K Metric Tons (MT) of HCV and LCV ...
Thursday, 28 May 15
TIMEBAR FOR DEMURRAGE CLAIMS - SKULD
KNOWLEDGE TO ELEVATE
English law has traditionally had a strict approach to contractually agreed time bars between commercial parties as well ...
Wednesday, 27 May 15
MARKET INSIGHT - TIMOS PAPADIMITRIOU
Earlier in the year I looked at how the market was reacting to the prolonged fall of the price of oil. Back then it was still unclear if the fallin ...
Tuesday, 26 May 15
HOW HAS THE DROP IN OIL PRICES AFFECTED OTHER COMMODITIES? - CLYDE & CO
KNOWLEDGE TO ELEVATE
The effects of the dramatic drop in the price of both Ice March Brent, the international oil marker, and its US counterpa ...
|
|
|
Showing 3001 to 3005 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- SN Aboitiz Power Inc, Philippines
- Heidelberg Cement - Germany
- Baramulti Group, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Mines - Canada
- Riau Bara Harum - Indonesia
- Attock Cement Pakistan Limited
- Eastern Coal Council - USA
- Edison Trading Spa - Italy
- Gujarat Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Power Finance Corporation Ltd., India
- Bhoruka Overseas - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bharathi Cement Corporation - India
- Tata Chemicals Ltd - India
- Kumho Petrochemical, South Korea
- SMC Global Power, Philippines
- Vizag Seaport Private Limited - India
- Meenaskhi Energy Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Ministry of Transport, Egypt
- Savvy Resources Ltd - HongKong
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Cement Manufacturers Association - India
- Coastal Gujarat Power Limited - India
- Madhucon Powers Ltd - India
- Australian Commodity Traders Exchange
- Malabar Cements Ltd - India
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- Indian Energy Exchange, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- Jindal Steel & Power Ltd - India
- Barasentosa Lestari - Indonesia
- Lanco Infratech Ltd - India
- Singapore Mercantile Exchange
- Sarangani Energy Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Energy Development Corp, Philippines
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Kapuas Tunggal Persada - Indonesia
- Formosa Plastics Group - Taiwan
- Gujarat Mineral Development Corp Ltd - India
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- PowerSource Philippines DevCo
- Gujarat Sidhee Cement - India
- Directorate Of Revenue Intelligence - India
- Rashtriya Ispat Nigam Limited - India
- IEA Clean Coal Centre - UK
- Kalimantan Lumbung Energi - Indonesia
- Agrawal Coal Company - India
- Medco Energi Mining Internasional
- Electricity Authority, New Zealand
- Indo Tambangraya Megah - Indonesia
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Mercuria Energy - Indonesia
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- ASAPP Information Group - India
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Renaissance Capital - South Africa
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement - Thailand
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Deloitte Consulting - India
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- GAC Shipping (India) Pvt Ltd
- San Jose City I Power Corp, Philippines
- Sojitz Corporation - Japan
- Price Waterhouse Coopers - Russia
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Maharashtra Electricity Regulatory Commission - India
- Mercator Lines Limited - India
- Bhatia International Limited - India
- Salva Resources Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- Oldendorff Carriers - Singapore
- South Luzon Thermal Energy Corporation
- Makarim & Taira - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- Indian Oil Corporation Limited
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Larsen & Toubro Limited - India
- Coal and Oil Company - UAE
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement PLC, Thailand
- Bangladesh Power Developement Board
- Videocon Industries ltd - India
- Mintek Dendrill Indonesia
- Holcim Trading Pte Ltd - Singapore
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Bukit Makmur.PT - Indonesia
- Romanian Commodities Exchange
- Kohat Cement Company Ltd. - Pakistan
- Krishnapatnam Port Company Ltd. - India
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Anglo American - United Kingdom
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- Indogreen Group - Indonesia
- Uttam Galva Steels Limited - India
- Dalmia Cement Bharat India
- Wilmar Investment Holdings
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mjunction Services Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Parliament of New Zealand
- GN Power Mariveles Coal Plant, Philippines
- Coalindo Energy - Indonesia
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- Vedanta Resources Plc - India
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Ambuja Cements Ltd - India
- Minerals Council of Australia
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- VISA Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Planning Commission, India
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Chettinad Cement Corporation Ltd - India
- Samtan Co., Ltd - South Korea
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Independent Power Producers Association of India
- Kobexindo Tractors - Indoneisa
- Manunggal Multi Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Petron Corporation, Philippines
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Electricity Generating Authority of Thailand
- PTC India Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Finance - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- McConnell Dowell - Australia
- Metalloyd Limited - United Kingdom
- Toyota Tsusho Corporation, Japan
- Sakthi Sugars Limited - India
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- Therma Luzon, Inc, Philippines
- Altura Mining Limited, Indonesia
- Billiton Holdings Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- Leighton Contractors Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- The University of Queensland
- Bhushan Steel Limited - India
|
| |
| |
|
