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, 05 May 14
HUANENG CLEAN ENERGY RESEARCH INSTITUTE HAS CONFIRMED TO SPEAK AT CCF2014
Press Release: Produced by CDMC Events, The 13th Clean Coal Forum 2014 will be held on June 12,13, 2014 in Beijing, China. We are glad to invite ...
Monday, 05 May 14
SUB BIT-FOB INDONESIA COAL SWAPS LOST GROUND LAST WEEK
COALspot.com: Indonesian coal swaps for average Q3’ 2014 lost on day, week and on month according to AsiaClear OTC coal swap's reports ...
Monday, 05 May 14
API 8 CFR SOUTH CHINA COAL SWAP FOR AVERAGE Q3 14 DELIVERIES: LOST 0.82% M-O-M
COALspot.com: API 8 CFR South China Coal swaps for average Q3 14 deliveries lost 0.82 percent month on month and closed at US$ 75.20 per mt as o ...
Sunday, 04 May 14
INDONESIA TO INDIA FREIGHT RATES ARE SHOWING POSITIVE TREND
COALspot.com: The freight market is seems to be some recovery as cape index has increased by 7.84 pct week on week. Cape index closed at 1829 po ...
Friday, 02 May 14
ADARO ENERGY STARTS YEAR 2014 WELL DESPITE CURRENT MARKET CONDITIONS
COALspot.com: Adaro Energy, the second largest Indonesian coal miner's revenue increased 14% to US$ 845 million due to higher sales volume, ...
|
|
|
Showing 3721 to 3725 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- GAC Shipping (India) Pvt Ltd
- The Treasury - Australian Government
- Indian Energy Exchange, India
- Ministry of Transport, Egypt
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Sojitz Corporation - Japan
- Chamber of Mines of South Africa
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- Iligan Light & Power Inc, Philippines
- Rio Tinto Coal - Australia
- Bhoruka Overseas - Indonesia
- SN Aboitiz Power Inc, Philippines
- Independent Power Producers Association of India
- Central Java Power - Indonesia
- Metalloyd Limited - United Kingdom
- Power Finance Corporation Ltd., India
- PetroVietnam Power Coal Import and Supply Company
- Kobexindo Tractors - Indoneisa
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
- Commonwealth Bank - Australia
- Gujarat Mineral Development Corp Ltd - India
- Coastal Gujarat Power Limited - India
- Energy Link Ltd, New Zealand
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Attock Cement Pakistan Limited
- Ministry of Mines - Canada
- Global Business Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Trasteel International SA, Italy
- PNOC Exploration Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Jaiprakash Power Ventures ltd
- PowerSource Philippines DevCo
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Singapore Mercantile Exchange
- Holcim Trading Pte Ltd - Singapore
- SMC Global Power, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Malabar Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Cement Manufacturers Association - India
- Latin American Coal - Colombia
- London Commodity Brokers - England
- Pipit Mutiara Jaya. PT, Indonesia
- TeaM Sual Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Banpu Public Company Limited - Thailand
- Gujarat Sidhee Cement - India
- Videocon Industries ltd - India
- LBH Netherlands Bv - Netherlands
- Vizag Seaport Private Limited - India
- Wilmar Investment Holdings
- Savvy Resources Ltd - HongKong
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Mercator Lines Limited - India
- Kartika Selabumi Mining - Indonesia
- The University of Queensland
- Xindia Steels Limited - India
- Aditya Birla Group - India
- Indonesian Coal Mining Association
- Directorate Of Revenue Intelligence - India
- Simpson Spence & Young - Indonesia
- Salva Resources Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- CIMB Investment Bank - Malaysia
- Sical Logistics Limited - India
- Antam Resourcindo - Indonesia
- Vedanta Resources Plc - India
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Global Green Power PLC Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Tamil Nadu electricity Board
- Bangladesh Power Developement Board
- Formosa Plastics Group - Taiwan
- India Bulls Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Coal and Oil Company - UAE
- Ceylon Electricity Board - Sri Lanka
- Kideco Jaya Agung - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bhatia International Limited - India
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement - Thailand
- AsiaOL BioFuels Corp., Philippines
- Thiess Contractors Indonesia
- Coalindo Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Goldman Sachs - Singapore
- Uttam Galva Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Australian Coal Association
- Directorate General of MIneral and Coal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Thai Mozambique Logistica
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- OPG Power Generation Pvt Ltd - India
- Heidelberg Cement - Germany
- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- ASAPP Information Group - India
- IHS Mccloskey Coal Group - USA
- Price Waterhouse Coopers - Russia
- White Energy Company Limited
- IEA Clean Coal Centre - UK
- Kohat Cement Company Ltd. - Pakistan
- McConnell Dowell - Australia
- San Jose City I Power Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- Sree Jayajothi Cements Limited - India
- Tata Chemicals Ltd - India
- Manunggal Multi Energi - Indonesia
- Romanian Commodities Exchange
- Timah Investasi Mineral - Indoneisa
- Sindya Power Generating Company Private Ltd
- Economic Council, Georgia
- Indika Energy - Indonesia
- Anglo American - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Mintek Dendrill Indonesia
- Edison Trading Spa - Italy
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- New Zealand Coal & Carbon
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Renaissance Capital - South Africa
- Electricity Generating Authority of Thailand
- PTC India Limited - India
- Essar Steel Hazira Ltd - India
- Ambuja Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Planning Commission, India
- European Bulk Services B.V. - Netherlands
- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- Semirara Mining Corp, Philippines
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Riau Bara Harum - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Lanco Infratech Ltd - India
- Bulk Trading Sa - Switzerland
- Agrawal Coal Company - India
- Indian Oil Corporation Limited
- Meralco Power Generation, Philippines
- Altura Mining Limited, Indonesia
- Orica Australia Pty. Ltd.
- Marubeni Corporation - India
- Star Paper Mills Limited - India
- Billiton Holdings Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Deloitte Consulting - India
- Maharashtra Electricity Regulatory Commission - India
- Sarangani Energy Corporation, Philippines
- Bhushan Steel Limited - India
|
| |
| |
|
