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.
|
|
Wednesday, 26 March 14
NEWBUILDING ORDERING ACTIVITY PICKS UP PACE ON IMPROVING DRY BULK MARKET CONDITIONS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The gradual improvement of the dry bulk market, as expected for some time now, is urging shipowners to increase their newbuilding ordering activ ...
Wednesday, 26 March 14
LARGE AMOUNT OF VESSELS CHARTERED TO HAUL IRON ORE CARGOES TO CHINESE BUYERS THIS WEEK - COMMODORE RESEARCH & CONSULTANCY
COALspot.com: Through the first three days of this week, 18 dry bulk vessels have been chartered to haul spot iron ore cargoes to Chinese buyers ...
Wednesday, 26 March 14
JOIN IN THE CLEAN COAL CASE STUDY WITH SINOPEC!
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 Experts ...
Tuesday, 25 March 14
INDONESIAN SUB-BITUMINOUS COAL SWAP FOR Q2 DELIVERY CLOSED $ 57.40 PMT W/E 21 MARCH 2014
COALspot.com – Indonesia, the world’s largest exporter of the thermal coal's swaps for delivery April - June 2014 gained this pa ...
Tuesday, 25 March 14
NEWCASTLE COAL EXPORTS JUMP 29.16% TO 2.79 MMT WEEK ON WEEK
COALspot.com: In the week ended 24 March 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, total 2.79 ...
|
|
|
Showing 3781 to 3785 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- European Bulk Services B.V. - Netherlands
- Bayan Resources Tbk. - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Price Waterhouse Coopers - Russia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Thai Mozambique Logistica
- Thiess Contractors Indonesia
- Dalmia Cement Bharat India
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Mintek Dendrill Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Oil Corporation Limited
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- ICICI Bank Limited - India
- Indian Energy Exchange, India
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Standard Chartered Bank - UAE
- SMC Global Power, Philippines
- Kobexindo Tractors - Indoneisa
- Riau Bara Harum - Indonesia
- Samtan Co., Ltd - South Korea
- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
- Mjunction Services Limited - India
- Larsen & Toubro Limited - India
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- Interocean Group of Companies - India
- Jorong Barutama Greston.PT - Indonesia
- Siam City Cement - Thailand
- Trasteel International SA, Italy
- Coal and Oil Company - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- New Zealand Coal & Carbon
- Ministry of Finance - Indonesia
- Baramulti Group, Indonesia
- South Luzon Thermal Energy Corporation
- Timah Investasi Mineral - Indoneisa
- LBH Netherlands Bv - Netherlands
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Indogreen Group - Indonesia
- Renaissance Capital - South Africa
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- Planning Commission, India
- Gujarat Sidhee Cement - India
- SMG Consultants - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- IEA Clean Coal Centre - UK
- Karaikal Port Pvt Ltd - India
- Cement Manufacturers Association - India
- Parry Sugars Refinery, India
- GN Power Mariveles Coal Plant, Philippines
- Petron Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Anglo American - United Kingdom
- Global Green Power PLC Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Australian Coal Association
- Barasentosa Lestari - Indonesia
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Sojitz Corporation - Japan
- Madhucon Powers Ltd - India
- Xindia Steels Limited - India
- PTC India Limited - India
- Star Paper Mills Limited - India
- Coastal Gujarat Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Marubeni Corporation - India
- Energy Link Ltd, New Zealand
- Central Java Power - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- PNOC Exploration Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Oldendorff Carriers - Singapore
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- Sarangani Energy Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Global Business Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Eastern Energy - Thailand
- Indo Tambangraya Megah - Indonesia
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- Goldman Sachs - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- Attock Cement Pakistan Limited
- Orica Australia Pty. Ltd.
- Commonwealth Bank - Australia
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Economic Council, Georgia
- Jaiprakash Power Ventures ltd
- Africa Commodities Group - South Africa
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- GMR Energy Limited - India
- Mercator Lines Limited - India
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- Aboitiz Power Corporation - Philippines
- Electricity Authority, New Zealand
- PowerSource Philippines DevCo
- Krishnapatnam Port Company Ltd. - India
- India Bulls Power Limited - India
- Eastern Coal Council - USA
- Jindal Steel & Power Ltd - India
- White Energy Company Limited
- Essar Steel Hazira Ltd - India
- Binh Thuan Hamico - Vietnam
- Banpu Public Company Limited - Thailand
- Salva Resources Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Manunggal Multi Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- TeaM Sual Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Mines - Canada
- IHS Mccloskey Coal Group - USA
- Metalloyd Limited - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Heidelberg Cement - Germany
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Australian Commodity Traders Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- Chettinad Cement Corporation Ltd - India
- Ind-Barath Power Infra Limited - India
- Orica Mining Services - Indonesia
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Wilmar Investment Holdings
- Uttam Galva Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Toyota Tsusho Corporation, Japan
- Vizag Seaport Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- Vedanta Resources Plc - India
- GAC Shipping (India) Pvt Ltd
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Port Waratah Coal Services - Australia
- Antam Resourcindo - Indonesia
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- The University of Queensland
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Pendopo Energi Batubara - Indonesia
- Georgia Ports Authority, United States
- Meenaskhi Energy Private Limited - India
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Gujarat Mineral Development Corp Ltd - India
- Bhoruka Overseas - Indonesia
- Parliament of New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Rashtriya Ispat Nigam Limited - India
- Videocon Industries ltd - India
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- MS Steel International - UAE
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
|
| |
| |
|
