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.
|
|
Friday, 30 November 12
IS INDONESIAN COAL INDUSTRY DEPENDS HEAVILY ON INDIA AND CHINA?
COALspot.com: Indonesia, the world largest multi grade coal exporter, shipped 35,143,587* tons of coal in October 2012. October exports are 19 ...
Thursday, 29 November 12
BUMI TO PRODUCE 100 MILLION TONS OF COAL BY 2014
COALspot.com - Expansions on both BUMI’ s subsidiaries, PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia ( Arutmin) , are ...
Thursday, 29 November 12
PANAMAX : A FAIRLY STEADY MARKET WITH USD 8.5-9K/DAY FOR 2 LADEN LEGS IN ATLANTIC - FEARNLEYS
Handy
The Atlantic market continues to remain quiet due to more supply of ships. Rates from USG to Far East were around USD 18k and Black Sea to Fa ...
Thursday, 29 November 12
DRY BULK MARKET SLIGHTLY HIGHER DESPITE LULL ACTIVITY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market was marginally higher yesterday, according to the industry's benchmark, the Baltic Dry Index (BDI), which rose by 7 points to 1 ...
Wednesday, 28 November 12
NEWBUILDING ORDERING PICKS UP AS SHIP OWNERS LOOK TO CLOSE DEALS BEFORE THE END OF THE YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship owners are active once again in the newbuilding ordering market, as they look to clinch deals ahead of the end of the year. Once again their fo ...
|
|
|
Showing 4481 to 4485 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Medco Energi Mining Internasional
- Aditya Birla Group - India
- IEA Clean Coal Centre - UK
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Vedanta Resources Plc - India
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- PowerSource Philippines DevCo
- Ministry of Mines - Canada
- Independent Power Producers Association of India
- European Bulk Services B.V. - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- CIMB Investment Bank - Malaysia
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- Larsen & Toubro Limited - India
- Indonesian Coal Mining Association
- Bhushan Steel Limited - India
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Australian Coal Association
- Riau Bara Harum - Indonesia
- Global Business Power Corporation, Philippines
- Parliament of New Zealand
- Mercator Lines Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- Parry Sugars Refinery, India
- Krishnapatnam Port Company Ltd. - India
- Tamil Nadu electricity Board
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Romanian Commodities Exchange
- Star Paper Mills Limited - India
- Rio Tinto Coal - Australia
- Kobexindo Tractors - Indoneisa
- Therma Luzon, Inc, Philippines
- Wilmar Investment Holdings
- Makarim & Taira - Indonesia
- Power Finance Corporation Ltd., India
- Sarangani Energy Corporation, Philippines
- Energy Link Ltd, New Zealand
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- Kepco SPC Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Lanco Infratech Ltd - India
- Meralco Power Generation, Philippines
- Heidelberg Cement - Germany
- Ambuja Cements Ltd - India
- The University of Queensland
- Samtan Co., Ltd - South Korea
- Barasentosa Lestari - Indonesia
- Mjunction Services Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Energy Development Corp, Philippines
- Agrawal Coal Company - India
- Semirara Mining and Power Corporation, Philippines
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Alfred C Toepfer International GmbH - Germany
- Aboitiz Power Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Pendopo Energi Batubara - Indonesia
- Manunggal Multi Energi - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- San Jose City I Power Corp, Philippines
- PTC India Limited - India
- Xindia Steels Limited - India
- GMR Energy Limited - India
- ASAPP Information Group - India
- Kohat Cement Company Ltd. - Pakistan
- Maheswari Brothers Coal Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Interocean Group of Companies - India
- Cigading International Bulk Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- SMG Consultants - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Petron Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Wood Mackenzie - Singapore
- Borneo Indobara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Planning Commission, India
- New Zealand Coal & Carbon
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Bukit Makmur.PT - Indonesia
- GVK Power & Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Africa Commodities Group - South Africa
- Port Waratah Coal Services - Australia
- Grasim Industreis Ltd - India
- MS Steel International - UAE
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Essar Steel Hazira Ltd - India
- The Treasury - Australian Government
- Metalloyd Limited - United Kingdom
- Coal and Oil Company - UAE
- Global Coal Blending Company Limited - Australia
- Antam Resourcindo - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- Posco Energy - South Korea
- Banpu Public Company Limited - Thailand
- Rashtriya Ispat Nigam Limited - India
- India Bulls Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- CNBM International Corporation - China
- Holcim Trading Pte Ltd - Singapore
- International Coal Ventures Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Iligan Light & Power Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Gujarat Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Eastern Coal Council - USA
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- Marubeni Corporation - India
- VISA Power Limited - India
- Ministry of Finance - Indonesia
- Uttam Galva Steels Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Bhatia International Limited - India
- Electricity Generating Authority of Thailand
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Economic Council, Georgia
- South Luzon Thermal Energy Corporation
- Binh Thuan Hamico - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Central Java Power - Indonesia
- Salva Resources Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Altura Mining Limited, Indonesia
- ICICI Bank Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Thai Mozambique Logistica
- The State Trading Corporation of India Ltd
- GN Power Mariveles Coal Plant, Philippines
- Coastal Gujarat Power Limited - India
- Renaissance Capital - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Edison Trading Spa - Italy
- Pipit Mutiara Jaya. PT, Indonesia
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Bayan Resources Tbk. - Indonesia
- Goldman Sachs - Singapore
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Kideco Jaya Agung - Indonesia
- Deloitte Consulting - India
- Sojitz Corporation - Japan
- Indogreen Group - Indonesia
- Indian Oil Corporation Limited
- Thiess Contractors Indonesia
- Merrill Lynch Commodities Europe
- Australian Commodity Traders Exchange
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- Malabar Cements Ltd - India
- Videocon Industries ltd - India
- Bangladesh Power Developement Board
- Price Waterhouse Coopers - Russia
- Trasteel International SA, Italy
- Jorong Barutama Greston.PT - Indonesia
- Singapore Mercantile Exchange
- Eastern Energy - Thailand
- IHS Mccloskey Coal Group - USA
- Commonwealth Bank - Australia
- Siam City Cement PLC, Thailand
- Anglo American - United Kingdom
- Chettinad Cement Corporation Ltd - India
|
| |
| |
|
