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.
|
|
Tuesday, 15 January 13
GRANT SMITH APPOINTED GROUP MANAGING DIRECTOR OF BRAEMAR ADJUSTING
The Board of Braemar Adjusting is delighted to announce the appointment of Grant Smith as Group Managing Director of the company with immediate effe ...
Tuesday, 15 January 13
2ND MYANMAR MINING SUMMIT & OFFICIAL HOST MINISTRY OF MINES TO WELCOME OVER 200 DELEGATES NEXT WEEK
Press Release: The Ministry of Mines is hosting the 2nd Myanmar Mining Summit in Yangon on 21-24 January to unravel the local mining climate, prospe ...
Monday, 14 January 13
NEWCASTLE PORT SHIPPED 2.32 PERCENT LESS COAL W/E 14 JANUARY 2013
COALspot.com - Newcastle port in Australia has loaded 3,123,312 MT of thermal and coking coal for week ended 0700 hours 14 January 2013, Newca ...
Monday, 14 January 13
THE COAL MONGOLIA - 2013 OFFICIALLY IN COOPERATION WITH TOP MINING COMPANIES
Press Release: Mongolian first mining portal site Mining.mn has already started its preparation of the International Conference “COAL MONGOLIA ...
Monday, 14 January 13
NTPC INVITES BIDS FOR 500K MT OF IMPORTED COAL
COALspot.com - NTPC Limited (formerly National Thermal Power Corporation) is the largest Indian state-owned electric utilities company called for a ...
|
|
|
Showing 4421 to 4425 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Energy Development Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Grasim Industreis Ltd - India
- GVK Power & Infra Limited - India
- Coalindo Energy - Indonesia
- Oldendorff Carriers - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Barasentosa Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- Tata Chemicals Ltd - India
- Ministry of Finance - Indonesia
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Antam Resourcindo - Indonesia
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Binh Thuan Hamico - Vietnam
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- White Energy Company Limited
- Global Business Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Indo Tambangraya Megah - Indonesia
- Attock Cement Pakistan Limited
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- PTC India Limited - India
- Interocean Group of Companies - India
- Essar Steel Hazira Ltd - India
- Straits Asia Resources Limited - Singapore
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- Vizag Seaport Private Limited - India
- Kumho Petrochemical, South Korea
- SMG Consultants - Indonesia
- Chamber of Mines of South Africa
- Bhoruka Overseas - Indonesia
- Latin American Coal - Colombia
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Sojitz Corporation - Japan
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- Baramulti Group, Indonesia
- Merrill Lynch Commodities Europe
- Sical Logistics Limited - India
- Formosa Plastics Group - Taiwan
- Kaltim Prima Coal - Indonesia
- Bulk Trading Sa - Switzerland
- Aboitiz Power Corporation - Philippines
- Parry Sugars Refinery, India
- Rio Tinto Coal - Australia
- Directorate Of Revenue Intelligence - India
- LBH Netherlands Bv - Netherlands
- PNOC Exploration Corporation - Philippines
- Planning Commission, India
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Africa Commodities Group - South Africa
- Trasteel International SA, Italy
- CNBM International Corporation - China
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Sakthi Sugars Limited - India
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Bukit Baiduri Energy - Indonesia
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- South Luzon Thermal Energy Corporation
- Sinarmas Energy and Mining - Indonesia
- Lanco Infratech Ltd - India
- Power Finance Corporation Ltd., India
- Malabar Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Ambuja Cements Ltd - India
- Energy Link Ltd, New Zealand
- Makarim & Taira - Indonesia
- Karaikal Port Pvt Ltd - India
- Eastern Coal Council - USA
- Electricity Generating Authority of Thailand
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- PetroVietnam Power Coal Import and Supply Company
- Ind-Barath Power Infra Limited - India
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- Agrawal Coal Company - India
- Cement Manufacturers Association - India
- Singapore Mercantile Exchange
- GAC Shipping (India) Pvt Ltd
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- International Coal Ventures Pvt Ltd - India
- Vedanta Resources Plc - India
- Intertek Mineral Services - Indonesia
- Medco Energi Mining Internasional
- Sindya Power Generating Company Private Ltd
- Standard Chartered Bank - UAE
- Edison Trading Spa - Italy
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Global Green Power PLC Corporation, Philippines
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- VISA Power Limited - India
- Bharathi Cement Corporation - India
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- Manunggal Multi Energi - Indonesia
- Georgia Ports Authority, United States
- SMC Global Power, Philippines
- Borneo Indobara - Indonesia
- Thai Mozambique Logistica
- Deloitte Consulting - India
- Gujarat Mineral Development Corp Ltd - India
- Price Waterhouse Coopers - Russia
- Indika Energy - Indonesia
- Minerals Council of Australia
- Mercuria Energy - Indonesia
- Bhushan Steel Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Economic Council, Georgia
- Marubeni Corporation - India
- Sree Jayajothi Cements Limited - India
- Port Waratah Coal Services - Australia
- Vijayanagar Sugar Pvt Ltd - India
- India Bulls Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Ministry of Transport, Egypt
- MS Steel International - UAE
- Heidelberg Cement - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- GMR Energy Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Electricity Authority, New Zealand
- Chettinad Cement Corporation Ltd - India
- Orica Mining Services - Indonesia
- Bhatia International Limited - India
- Coastal Gujarat Power Limited - India
- ICICI Bank Limited - India
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Bangladesh Power Developement Board
- Romanian Commodities Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- IHS Mccloskey Coal Group - USA
- GN Power Mariveles Coal Plant, Philippines
- Billiton Holdings Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Savvy Resources Ltd - HongKong
- Siam City Cement - Thailand
- Ceylon Electricity Board - Sri Lanka
- Metalloyd Limited - United Kingdom
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jaiprakash Power Ventures ltd
- Uttam Galva Steels Limited - India
- Star Paper Mills Limited - India
- Wilmar Investment Holdings
- Banpu Public Company Limited - Thailand
- Pendopo Energi Batubara - Indonesia
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Independent Power Producers Association of India
- CIMB Investment Bank - Malaysia
- Dalmia Cement Bharat India
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Renaissance Capital - South Africa
|
| |
| |
|
