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, 25 October 21
A QUESTION OF POSSESSION - THE BALTIC EXCHANGE
Possession and tangibility are closely related concepts long established under English law. Yet a change to these concepts is around the corner. Th ...
Monday, 25 October 21
CHINA VOWS TO SEVERELY PUNISH MARKET VIOLATIONS AMID LOW COAL FUTURES PRICES - GLOBAL TIMES
Domestic coal futures had plunged for three consecutive trading days after the government vowed to crack down on soaring prices, and China’s ...
Monday, 25 October 21
FARMERS MAY JOIN THE COAL COMMODITY MARKET TO REDUCE RISKS - GLOBAL TIMES
A recent trip to by the Global Times to East China’s Shandong Province to get a glimpse of China’s coal supply chain revealed a surpris ...
Monday, 25 October 21
CHINA COAL PRICES MARK WORST WEEK SINCE MAY ON GOVERNMENT INTERVENTION - REUTERS
China’s thermal coal futures plunged on Friday and turned in their worst week in five months, following Beijing’s strongest interventio ...
Friday, 22 October 21
THE BIG PICTURE: ENERGY MARKETS - BREAK WAVE ADVISORS
The shipping markets have been pulled further into wild markets of coal and other energy sources. Given how nebulous this sector is, it’s alw ...
|
|
|
Showing 436 to 440 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Malabar Cements Ltd - India
- Indogreen Group - Indonesia
- Pendopo Energi Batubara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Wood Mackenzie - Singapore
- Latin American Coal - Colombia
- Kalimantan Lumbung Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Jaiprakash Power Ventures ltd
- SMC Global Power, Philippines
- Lanco Infratech Ltd - India
- Eastern Coal Council - USA
- International Coal Ventures Pvt Ltd - India
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- Riau Bara Harum - Indonesia
- Ministry of Mines - Canada
- Trasteel International SA, Italy
- Romanian Commodities Exchange
- Bhoruka Overseas - Indonesia
- India Bulls Power Limited - India
- Heidelberg Cement - Germany
- Baramulti Group, Indonesia
- London Commodity Brokers - England
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Chamber of Mines of South Africa
- Orica Mining Services - Indonesia
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Energy Link Ltd, New Zealand
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Indonesian Coal Mining Association
- Port Waratah Coal Services - Australia
- Interocean Group of Companies - India
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Vedanta Resources Plc - India
- Karbindo Abesyapradhi - Indoneisa
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- White Energy Company Limited
- Rashtriya Ispat Nigam Limited - India
- CNBM International Corporation - China
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- GVK Power & Infra Limited - India
- Economic Council, Georgia
- Merrill Lynch Commodities Europe
- Rio Tinto Coal - Australia
- Kobexindo Tractors - Indoneisa
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- MS Steel International - UAE
- CIMB Investment Bank - Malaysia
- Indian Energy Exchange, India
- Petrochimia International Co. Ltd.- Taiwan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Alfred C Toepfer International GmbH - Germany
- Coal and Oil Company - UAE
- Commonwealth Bank - Australia
- Miang Besar Coal Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Renaissance Capital - South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- South Luzon Thermal Energy Corporation
- PTC India Limited - India
- Krishnapatnam Port Company Ltd. - India
- Chettinad Cement Corporation Ltd - India
- LBH Netherlands Bv - Netherlands
- Posco Energy - South Korea
- Standard Chartered Bank - UAE
- ASAPP Information Group - India
- Borneo Indobara - Indonesia
- Jindal Steel & Power Ltd - India
- Formosa Plastics Group - Taiwan
- Australian Commodity Traders Exchange
- Indian Oil Corporation Limited
- Minerals Council of Australia
- McConnell Dowell - Australia
- Africa Commodities Group - South Africa
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Kumho Petrochemical, South Korea
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Karaikal Port Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Larsen & Toubro Limited - India
- Uttam Galva Steels Limited - India
- ICICI Bank Limited - India
- PetroVietnam Power Coal Import and Supply Company
- AsiaOL BioFuels Corp., Philippines
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Toyota Tsusho Corporation, Japan
- Petron Corporation, Philippines
- Energy Development Corp, Philippines
- Therma Luzon, Inc, Philippines
- Price Waterhouse Coopers - Russia
- Sindya Power Generating Company Private Ltd
- Aboitiz Power Corporation - Philippines
- Carbofer General Trading SA - India
- Bahari Cakrawala Sebuku - Indonesia
- Wilmar Investment Holdings
- Indo Tambangraya Megah - Indonesia
- Ind-Barath Power Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Mjunction Services Limited - India
- Essar Steel Hazira Ltd - India
- Xindia Steels Limited - India
- Makarim & Taira - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Videocon Industries ltd - India
- The University of Queensland
- Vizag Seaport Private Limited - India
- Bharathi Cement Corporation - India
- Ambuja Cements Ltd - India
- Grasim Industreis Ltd - India
- Power Finance Corporation Ltd., India
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Indika Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Bangladesh Power Developement Board
- GN Power Mariveles Coal Plant, Philippines
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Central Electricity Authority - India
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Tamil Nadu electricity Board
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Parliament of New Zealand
- Salva Resources Pvt Ltd - India
- Cement Manufacturers Association - India
- European Bulk Services B.V. - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Gujarat Sidhee Cement - India
- Kartika Selabumi Mining - Indonesia
- Simpson Spence & Young - Indonesia
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- Tata Chemicals Ltd - India
- Planning Commission, India
- PNOC Exploration Corporation - Philippines
- Global Business Power Corporation, Philippines
- Thiess Contractors Indonesia
- Bhatia International Limited - India
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement - Thailand
- The State Trading Corporation of India Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Finance - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Barasentosa Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Marubeni Corporation - India
- Coalindo Energy - Indonesia
- Australian Coal Association
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Directorate Of Revenue Intelligence - India
- IEA Clean Coal Centre - UK
- Independent Power Producers Association of India
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
|
| |
| |
|
