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, 10 March 14
THE FREIGHT MARKET WAS QUITE FIRM THIS PAST WEEK
COALspot.com: The freight market was quite firm this past week with BDI sharply increased by 22.65 pct week on week and closed at 1543 points, while ...
Saturday, 08 March 14
LETTERS OF INDEMNITY - SKULD
KNOWLEDGE TO ELEVATE
In today's trading market, owners are frequently requested to accept a letter of indemnity (LOI) in exchange for complying ...
Friday, 07 March 14
DRY BULK MARKET TO BENEFIT FROM CHINA'S GDP GROWTH TARGET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
With the dry bulk market freight rates finally making waves, China's aim of 7.5% GDP growth for 2014 mean once again positive news for the shipping ...
Friday, 07 March 14
RBCT, WORLD'S LARGEST COAL EXPORTING TERMINAL SHIPPED 1.78% LESS COAL MONTH ON MONTH
COALspot.com: South Africa's Richards Bay Coal Terminal (RBCT) the single largest export coal terminal in the world, shipped 4.487 million tons of ...
Friday, 07 March 14
INDONESIA SHIPPED 7% LESS COAL IN JANUARY 2014 COMPARED TO ITS DECEMBER EXPORTS
COALspot.com: Indonesia, the world 4th largest coal producer and the Global largest multi grade coal exporter shipped around $1.8* billion ...
|
|
|
Showing 3811 to 3815 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Carbofer General Trading SA - India
- Semirara Mining Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- SN Aboitiz Power Inc, Philippines
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- White Energy Company Limited
- Posco Energy - South Korea
- South Luzon Thermal Energy Corporation
- Malabar Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- Kaltim Prima Coal - Indonesia
- Edison Trading Spa - Italy
- Kepco SPC Power Corporation, Philippines
- Central Electricity Authority - India
- McConnell Dowell - Australia
- Intertek Mineral Services - Indonesia
- Mjunction Services Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Port Waratah Coal Services - Australia
- Gujarat Electricity Regulatory Commission - India
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Banpu Public Company Limited - Thailand
- Rashtriya Ispat Nigam Limited - India
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- Metalloyd Limited - United Kingdom
- Georgia Ports Authority, United States
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Aditya Birla Group - India
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- Energy Link Ltd, New Zealand
- Power Finance Corporation Ltd., India
- Renaissance Capital - South Africa
- Wilmar Investment Holdings
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Cement Manufacturers Association - India
- Latin American Coal - Colombia
- Neyveli Lignite Corporation Ltd, - India
- Ceylon Electricity Board - Sri Lanka
- Minerals Council of Australia
- International Coal Ventures Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- TNB Fuel Sdn Bhd - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bangladesh Power Developement Board
- IHS Mccloskey Coal Group - USA
- Meralco Power Generation, Philippines
- Coalindo Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- Sical Logistics Limited - India
- Petron Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- Star Paper Mills Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bharathi Cement Corporation - India
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- Straits Asia Resources Limited - Singapore
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining and Power Corporation, Philippines
- SMC Global Power, Philippines
- Parliament of New Zealand
- The Treasury - Australian Government
- Asmin Koalindo Tuhup - Indonesia
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Indian Oil Corporation Limited
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
- Alfred C Toepfer International GmbH - Germany
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- Global Business Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Billiton Holdings Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- Independent Power Producers Association of India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sarangani Energy Corporation, Philippines
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- ICICI Bank Limited - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Sree Jayajothi Cements Limited - India
- PTC India Limited - India
- Economic Council, Georgia
- Salva Resources Pvt Ltd - India
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Indian Energy Exchange, India
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Indika Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Heidelberg Cement - Germany
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bukit Baiduri Energy - Indonesia
- Essar Steel Hazira Ltd - India
- GAC Shipping (India) Pvt Ltd
- Meenaskhi Energy Private Limited - India
- Indo Tambangraya Megah - Indonesia
- Sindya Power Generating Company Private Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Goldman Sachs - Singapore
- Planning Commission, India
- Siam City Cement PLC, Thailand
- Trasteel International SA, Italy
- Parry Sugars Refinery, India
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- Jindal Steel & Power Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mintek Dendrill Indonesia
- Coastal Gujarat Power Limited - India
- Riau Bara Harum - Indonesia
- SMG Consultants - Indonesia
- Therma Luzon, Inc, Philippines
- VISA Power Limited - India
- Makarim & Taira - Indonesia
- MS Steel International - UAE
- Mercator Lines Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Ambuja Cements Ltd - India
- Eastern Coal Council - USA
- The University of Queensland
- Thai Mozambique Logistica
- Iligan Light & Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Leighton Contractors Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- ASAPP Information Group - India
- Kapuas Tunggal Persada - Indonesia
- India Bulls Power Limited - India
- Larsen & Toubro Limited - India
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Marubeni Corporation - India
- Ministry of Mines - Canada
- Aboitiz Power Corporation - Philippines
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- Altura Mining Limited, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Global Coal Blending Company Limited - Australia
- Orica Mining Services - Indonesia
- Binh Thuan Hamico - Vietnam
- Miang Besar Coal Terminal - Indonesia
- Manunggal Multi Energi - Indonesia
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- Videocon Industries ltd - India
- Borneo Indobara - Indonesia
- Thiess Contractors Indonesia
- Kartika Selabumi Mining - Indonesia
- Ministry of Transport, Egypt
- Uttam Galva Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- CNBM International Corporation - China
- Maharashtra Electricity Regulatory Commission - India
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Globalindo Alam Lestari - Indonesia
- London Commodity Brokers - England
- Bulk Trading Sa - Switzerland
- Krishnapatnam Port Company Ltd. - India
|
| |
| |
|
