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.
|
|
Wednesday, 29 August 12
COLOMBIA'S MINING BOOM: PART ONE - JOSEPH KIRSCHKE
COALspot.com - Colombia stands before one of the potentially largest, most diversified mining booms in the world. Untold reserves of gold, coal, cop ...
Wednesday, 29 August 12
SECOND HAND VESSELS IN HIGH DEMAND DESPITE SUMMER SEASON - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Despite the slow summer season, ship owners appear to be rather keen in acquiring some modern second hand tonnage at "knock-down" prices. ...
Monday, 27 August 12
BUMI BOOKS $322.1 MILLION NET LOSS IN 1H 2012 IN SPITE OF 8.6 PERCENT INCREASE IN SALES REVENUE
PT Bumi Resources Tbk, the single largest coal producer and exporter in Indonesia announces its first half financial report for the ...
Monday, 27 August 12
OVER 200 FOREIGN COMPANIES AND ENERGY MAJORS EXPECTED AT 2ND MOGP SUMMIT IN YANGON
Singapore based CMT and Machinery & Solutions Co. Ltd (M&S) announce that the 2nd MOGP Summit will be held on 3-6 September at the Sedona ho ...
Sunday, 26 August 12
SOUTH AFRICAN COAL OVERVIEW
South Africa's indigenous energy resource base is dominated by coal.
Internationally, coal is the most widely used primary fuel, accounting for ...
|
|
|
Showing 4601 to 4605 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Energy Development Corp, Philippines
- Simpson Spence & Young - Indonesia
- LBH Netherlands Bv - Netherlands
- Karaikal Port Pvt Ltd - India
- MS Steel International - UAE
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Maharashtra Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Marubeni Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
- Salva Resources Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Cement Manufacturers Association - India
- Kobexindo Tractors - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Petron Corporation, Philippines
- Planning Commission, India
- Tata Chemicals Ltd - India
- Chettinad Cement Corporation Ltd - India
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Borneo Indobara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- White Energy Company Limited
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Trasteel International SA, Italy
- India Bulls Power Limited - India
- Wilmar Investment Holdings
- Goldman Sachs - Singapore
- PTC India Limited - India
- Alfred C Toepfer International GmbH - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Mines - Canada
- Energy Link Ltd, New Zealand
- Videocon Industries ltd - India
- Indo Tambangraya Megah - Indonesia
- Sical Logistics Limited - India
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Parliament of New Zealand
- Indogreen Group - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
- Eastern Coal Council - USA
- Coal and Oil Company - UAE
- Ind-Barath Power Infra Limited - India
- ICICI Bank Limited - India
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Africa Commodities Group - South Africa
- Siam City Cement PLC, Thailand
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- McConnell Dowell - Australia
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Orica Australia Pty. Ltd.
- Thiess Contractors Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- Straits Asia Resources Limited - Singapore
- Banpu Public Company Limited - Thailand
- CNBM International Corporation - China
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- Bulk Trading Sa - Switzerland
- IHS Mccloskey Coal Group - USA
- Economic Council, Georgia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GVK Power & Infra Limited - India
- Central Electricity Authority - India
- Edison Trading Spa - Italy
- The State Trading Corporation of India Ltd
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- Rio Tinto Coal - Australia
- Renaissance Capital - South Africa
- Samtan Co., Ltd - South Korea
- Intertek Mineral Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- Madhucon Powers Ltd - India
- Ambuja Cements Ltd - India
- Anglo American - United Kingdom
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- Bharathi Cement Corporation - India
- Sinarmas Energy and Mining - Indonesia
- SMG Consultants - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Meralco Power Generation, Philippines
- The Treasury - Australian Government
- TNB Fuel Sdn Bhd - Malaysia
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Global Coal Blending Company Limited - Australia
- Aditya Birla Group - India
- European Bulk Services B.V. - Netherlands
- Kaltim Prima Coal - Indonesia
- Orica Mining Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Parry Sugars Refinery, India
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- Makarim & Taira - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Metalloyd Limited - United Kingdom
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Bangladesh Power Developement Board
- Singapore Mercantile Exchange
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Sakthi Sugars Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- Sojitz Corporation - Japan
- Price Waterhouse Coopers - Russia
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Australian Coal Association
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Jindal Steel & Power Ltd - India
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- VISA Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Deloitte Consulting - India
- Kalimantan Lumbung Energi - Indonesia
- Thai Mozambique Logistica
- GN Power Mariveles Coal Plant, Philippines
- Bukit Makmur.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Essar Steel Hazira Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Indonesian Coal Mining Association
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Heidelberg Cement - Germany
- SMC Global Power, Philippines
- Indika Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- Savvy Resources Ltd - HongKong
- Coastal Gujarat Power Limited - India
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Holcim Trading Pte Ltd - Singapore
- Sarangani Energy Corporation, Philippines
- Georgia Ports Authority, United States
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- Romanian Commodities Exchange
- Antam Resourcindo - Indonesia
- Indian Oil Corporation Limited
- Electricity Authority, New Zealand
- Bhoruka Overseas - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Therma Luzon, Inc, Philippines
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Siam City Cement - Thailand
- International Coal Ventures Pvt Ltd - India
- Mintek Dendrill Indonesia
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Riau Bara Harum - Indonesia
- Bhushan Steel Limited - India
- Baramulti Group, Indonesia
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Posco Energy - South Korea
|
| |
| |
|
