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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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Sunday, 24 November 13
SUPRAMAX FREIGHT RATES REMAINED FIRM FROM INDONESIA TO INDIA AND CHINA - SOLYM
COALspot.com: The freight market was fairly steady except for the Supramax in SE Asia region which continued to remain firm. The BDI was down by 1.5 ...
Friday, 22 November 13
DRY BULK MARKET STILL LACKLUSTRE, DESPITE PROJECTIONS OF A NEW RALLY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
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Friday, 22 November 13
US COAL PRODUCTION DOWN 1.3% W-W
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Thursday, 21 November 13
TAIPOWER TO PROCURE 750K MT OF 5500 GAR BITUMINOUS COAL FOR MAY - AUGUST 2014
COALspot.com: Taiwan Power Company intends to procure 750,000 metric tons of bituminous coal with calorific value not lesser than 5,500 kcal/kg on a ...
Thursday, 21 November 13
CAPESIZE : THE DOWNWARD TREND HAS TURNED INTO NOTABLE SPOT AND PERIOD IMPROVEMENT - FEARNLEYS
Handy
The Atlantic market experienced a general rate increase for most trades this week. More cargoes in the market and chrts looking for prompt t ...
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Showing 3996 to 4000 news of total 6871 |
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- Makarim & Taira - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- India Bulls Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Orica Mining Services - Indonesia
- Bangladesh Power Developement Board
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- GVK Power & Infra Limited - India
- London Commodity Brokers - England
- Salva Resources Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Indonesian Coal Mining Association
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Billiton Holdings Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Indian Oil Corporation Limited
- Iligan Light & Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Coastal Gujarat Power Limited - India
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Chettinad Cement Corporation Ltd - India
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Romanian Commodities Exchange
- Indogreen Group - Indonesia
- Interocean Group of Companies - India
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Manunggal Multi Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate Of Revenue Intelligence - India
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Ind-Barath Power Infra Limited - India
- Baramulti Group, Indonesia
- Globalindo Alam Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Aboitiz Power Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Jindal Steel & Power Ltd - India
- Posco Energy - South Korea
- Semirara Mining and Power Corporation, Philippines
- Star Paper Mills Limited - India
- White Energy Company Limited
- Central Electricity Authority - India
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Bukit Makmur.PT - Indonesia
- Chamber of Mines of South Africa
- The University of Queensland
- Bahari Cakrawala Sebuku - Indonesia
- Videocon Industries ltd - India
- Wood Mackenzie - Singapore
- Economic Council, Georgia
- Toyota Tsusho Corporation, Japan
- IHS Mccloskey Coal Group - USA
- The Treasury - Australian Government
- VISA Power Limited - India
- Parliament of New Zealand
- OPG Power Generation Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Standard Chartered Bank - UAE
- Thiess Contractors Indonesia
- PowerSource Philippines DevCo
- Antam Resourcindo - Indonesia
- Kumho Petrochemical, South Korea
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Coal and Oil Company - UAE
- Vedanta Resources Plc - India
- Heidelberg Cement - Germany
- Power Finance Corporation Ltd., India
- Orica Australia Pty. Ltd.
- Mjunction Services Limited - India
- San Jose City I Power Corp, Philippines
- Australian Coal Association
- Sindya Power Generating Company Private Ltd
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- SMG Consultants - Indonesia
- Tamil Nadu electricity Board
- CIMB Investment Bank - Malaysia
- Indian Energy Exchange, India
- Altura Mining Limited, Indonesia
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Kobexindo Tractors - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Holcim Trading Pte Ltd - Singapore
- Meralco Power Generation, Philippines
- Siam City Cement - Thailand
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- South Luzon Thermal Energy Corporation
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- Kalimantan Lumbung Energi - Indonesia
- Africa Commodities Group - South Africa
- Indika Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Simpson Spence & Young - Indonesia
- Lanco Infratech Ltd - India
- Formosa Plastics Group - Taiwan
- Edison Trading Spa - Italy
- Thai Mozambique Logistica
- Uttam Galva Steels Limited - India
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Commonwealth Bank - Australia
- Agrawal Coal Company - India
- Medco Energi Mining Internasional
- TNB Fuel Sdn Bhd - Malaysia
- Port Waratah Coal Services - Australia
- Sakthi Sugars Limited - India
- Rashtriya Ispat Nigam Limited - India
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Goldman Sachs - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Central Java Power - Indonesia
- Energy Link Ltd, New Zealand
- Karaikal Port Pvt Ltd - India
- Xindia Steels Limited - India
- SMC Global Power, Philippines
- Gujarat Sidhee Cement - India
- Aditya Birla Group - India
- Jaiprakash Power Ventures ltd
- Parry Sugars Refinery, India
- Krishnapatnam Port Company Ltd. - India
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- LBH Netherlands Bv - Netherlands
- Grasim Industreis Ltd - India
- TeaM Sual Corporation - Philippines
- New Zealand Coal & Carbon
- ASAPP Information Group - India
- GMR Energy Limited - India
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Anglo American - United Kingdom
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- Cement Manufacturers Association - India
- Sinarmas Energy and Mining - Indonesia
- Vizag Seaport Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Wilmar Investment Holdings
- Semirara Mining Corp, Philippines
- PTC India Limited - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Essar Steel Hazira Ltd - India
- International Coal Ventures Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- Samtan Co., Ltd - South Korea
- Global Green Power PLC Corporation, Philippines
- Minerals Council of Australia
- Bharathi Cement Corporation - India
- Bulk Trading Sa - Switzerland
- McConnell Dowell - Australia
- Larsen & Toubro Limited - India
- Carbofer General Trading SA - India
- Dalmia Cement Bharat India
- Pipit Mutiara Jaya. PT, Indonesia
- The State Trading Corporation of India Ltd
- European Bulk Services B.V. - Netherlands
- Coalindo Energy - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- Electricity Authority, New Zealand
- Georgia Ports Authority, United States
- Eastern Coal Council - USA
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- Planning Commission, India
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