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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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Thursday, 12 February 15
DRY BULK OWNERS SCRAP MORE VESSELS, AS MARKET REACHES HISTORICAL LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has reached historical lows this week, with the Baltic Dry Index (BDI) now trading at levels below operating expense levels for ...
Thursday, 12 February 15
INDONESIAN COAL PRICE REFERENCE INCHED DOWN 1.44% IN FEBRUARY
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 62.92 pe ...
Thursday, 12 February 15
NEWBUILDING ORDERING ACTIVITY DRAGS ON, AS OWNERS ARE LOOKING FOR LOWER PRICES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners appear to be waiting for lower prices in their dealings with Asian shipyards, as the dry bulk market is at historical lows. According t ...
Wednesday, 11 February 15
DRY BULK MARKET REMAINED UNDER PRESSURE : STABILIZING CAPE MARKET HARDLY HELPED SENTIMENT
COALspot.com: The Dry Bulk market remained under pressure last week, while the stabilizing Cape market hardly helped sentiment.
Greece based s ...
Wednesday, 11 February 15
BDI HITTING THE ALL-TIME LOW; FFA MARKETS NOT SHOWING ANY POSITIVE SIGNS
With the BDI hitting the all-time low and with FFA markets not showing any positive signs for a possible recovery in the near future, pessimism is ...
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Showing 3201 to 3205 news of total 6871 |
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- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Indian Energy Exchange, India
- The University of Queensland
- Global Green Power PLC Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- White Energy Company Limited
- Asmin Koalindo Tuhup - Indonesia
- Mercuria Energy - Indonesia
- TeaM Sual Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Madhucon Powers Ltd - India
- Vedanta Resources Plc - India
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Simpson Spence & Young - Indonesia
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Sarangani Energy Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Altura Mining Limited, Indonesia
- Indika Energy - Indonesia
- GMR Energy Limited - India
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- Indian Oil Corporation Limited
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- The Treasury - Australian Government
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- Toyota Tsusho Corporation, Japan
- Agrawal Coal Company - India
- Borneo Indobara - Indonesia
- Singapore Mercantile Exchange
- Sakthi Sugars Limited - India
- IHS Mccloskey Coal Group - USA
- Planning Commission, India
- Indogreen Group - Indonesia
- Bayan Resources Tbk. - Indonesia
- Semirara Mining and Power Corporation, Philippines
- ASAPP Information Group - India
- Parry Sugars Refinery, India
- GAC Shipping (India) Pvt Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Rio Tinto Coal - Australia
- Interocean Group of Companies - India
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- Kobexindo Tractors - Indoneisa
- PowerSource Philippines DevCo
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Australian Coal Association
- Kohat Cement Company Ltd. - Pakistan
- Xindia Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Videocon Industries ltd - India
- Sinarmas Energy and Mining - Indonesia
- Meralco Power Generation, Philippines
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Renaissance Capital - South Africa
- AsiaOL BioFuels Corp., Philippines
- Kideco Jaya Agung - Indonesia
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- Straits Asia Resources Limited - Singapore
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Cement Manufacturers Association - India
- Coal and Oil Company - UAE
- Wilmar Investment Holdings
- Heidelberg Cement - Germany
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- Globalindo Alam Lestari - Indonesia
- Commonwealth Bank - Australia
- Directorate Of Revenue Intelligence - India
- Thai Mozambique Logistica
- Aditya Birla Group - India
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- Miang Besar Coal Terminal - Indonesia
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Posco Energy - South Korea
- Bhoruka Overseas - Indonesia
- Wood Mackenzie - Singapore
- Gujarat Sidhee Cement - India
- Maheswari Brothers Coal Limited - India
- Africa Commodities Group - South Africa
- Indonesian Coal Mining Association
- Semirara Mining Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Eastern Coal Council - USA
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- ICICI Bank Limited - India
- Coastal Gujarat Power Limited - India
- Larsen & Toubro Limited - India
- Gujarat Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- Cigading International Bulk Terminal - Indonesia
- Bangladesh Power Developement Board
- MS Steel International - UAE
- Pendopo Energi Batubara - Indonesia
- Thiess Contractors Indonesia
- Energy Link Ltd, New Zealand
- Petron Corporation, Philippines
- India Bulls Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Sojitz Corporation - Japan
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- Jindal Steel & Power Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Oldendorff Carriers - Singapore
- Therma Luzon, Inc, Philippines
- Romanian Commodities Exchange
- Orica Mining Services - Indonesia
- Grasim Industreis Ltd - India
- Jaiprakash Power Ventures ltd
- Minerals Council of Australia
- Neyveli Lignite Corporation Ltd, - India
- Bulk Trading Sa - Switzerland
- Coalindo Energy - Indonesia
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Essar Steel Hazira Ltd - India
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Economic Council, Georgia
- Kaltim Prima Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Mercator Lines Limited - India
- Power Finance Corporation Ltd., India
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Sree Jayajothi Cements Limited - India
- Orica Australia Pty. Ltd.
- Indo Tambangraya Megah - Indonesia
- Barasentosa Lestari - Indonesia
- Dalmia Cement Bharat India
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- PTC India Limited - India
- Malabar Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- GVK Power & Infra Limited - India
- Standard Chartered Bank - UAE
- Edison Trading Spa - Italy
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Electricity Authority, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Jorong Barutama Greston.PT - Indonesia
- Bhushan Steel Limited - India
- Riau Bara Harum - Indonesia
- Bukit Baiduri Energy - Indonesia
- New Zealand Coal & Carbon
- Merrill Lynch Commodities Europe
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Anglo American - United Kingdom
- Global Coal Blending Company Limited - Australia
- The State Trading Corporation of India Ltd
- Karbindo Abesyapradhi - Indoneisa
- Sical Logistics Limited - India
- SMC Global Power, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Deloitte Consulting - India
- CIMB Investment Bank - Malaysia
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