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, 13 August 21
INDONESIA’S COAL EXPORTS TO JAPAN DECLINED BY -26.3% YOY TO 11.9 MLN TONNES IN THE FIRST 7 MONTHS OF 2021; STILL THE SECOND LARGEST SOURCE FOR JAPAN’S COAL IMPORTS IS INDONESIA - BANCHERO COSTA
2020 proved to be a truly terrible year for global seaborne coal trade. Total global loadings in the 12 months of 2020 were down -12.7% year-on-yea ...
Thursday, 12 August 21
ONLY 3 VLCCS SOLD FOR DEMOLITION IN 2021 AS SECONDHAND PRICES TEMPT - BIMCO
During the first seven months of 2021, only three actively trading Very Large Crude Carriers (VLCCs) have been sold for demolition. The current mar ...
Wednesday, 11 August 21
U.S: EIA EXPECTS COAL EXPORTS TO TOTAL 90 MMST IN 2021, 30% INCREASE FROM 2020
Coal production in EIA's forecast totals 607 million short tons (MMst) in 2021, an increase of 13% over 2020.
EIA is also ...
Wednesday, 11 August 21
MARKET INSIGHT - INTERMODAL
Energy is at the core of the global climate dialogue as the climate challenge is essentially an energy challenge. Policy experts around the world a ...
Tuesday, 10 August 21
34 INDONESIAN COAL COMPANIES TEMPORARILY BANNED FOR COAL EXPORTS
The Ministry of Energy and Mineral Resources (ESDM) has imposed sanctions in the form of a coal export ban for 34 coal companies as reported by CNB ...
|
|
|
Showing 506 to 510 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Sojitz Corporation - Japan
- Bhushan Steel Limited - India
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- ICICI Bank Limited - India
- SMC Global Power, Philippines
- Ministry of Transport, Egypt
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PTC India Limited - India
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- GVK Power & Infra Limited - India
- Electricity Generating Authority of Thailand
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Mercator Lines Limited - India
- Thiess Contractors Indonesia
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Parliament of New Zealand
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Indian Oil Corporation Limited
- Eastern Coal Council - USA
- Antam Resourcindo - Indonesia
- LBH Netherlands Bv - Netherlands
- Jindal Steel & Power Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Semirara Mining Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Africa Commodities Group - South Africa
- Directorate Of Revenue Intelligence - India
- Savvy Resources Ltd - HongKong
- Maharashtra Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Formosa Plastics Group - Taiwan
- Krishnapatnam Port Company Ltd. - India
- Cigading International Bulk Terminal - Indonesia
- Minerals Council of Australia
- Posco Energy - South Korea
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- Global Business Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Bayan Resources Tbk. - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Vijayanagar Sugar Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- Kapuas Tunggal Persada - Indonesia
- IHS Mccloskey Coal Group - USA
- Kideco Jaya Agung - Indonesia
- Sarangani Energy Corporation, Philippines
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Bhatia International Limited - India
- Gujarat Sidhee Cement - India
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Riau Bara Harum - Indonesia
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- San Jose City I Power Corp, Philippines
- Vizag Seaport Private Limited - India
- Aboitiz Power Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Thai Mozambique Logistica
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Australian Coal Association
- Medco Energi Mining Internasional
- Straits Asia Resources Limited - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Baramulti Group, Indonesia
- Bangladesh Power Developement Board
- Kumho Petrochemical, South Korea
- Coastal Gujarat Power Limited - India
- Grasim Industreis Ltd - India
- Siam City Cement PLC, Thailand
- Renaissance Capital - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Tamil Nadu electricity Board
- Bulk Trading Sa - Switzerland
- Georgia Ports Authority, United States
- Carbofer General Trading SA - India
- Rio Tinto Coal - Australia
- Essar Steel Hazira Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Power Finance Corporation Ltd., India
- Sakthi Sugars Limited - India
- MS Steel International - UAE
- Karaikal Port Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Anglo American - United Kingdom
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Videocon Industries ltd - India
- Indika Energy - Indonesia
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Wood Mackenzie - Singapore
- OPG Power Generation Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Manunggal Multi Energi - Indonesia
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pendopo Energi Batubara - Indonesia
- Mjunction Services Limited - India
- European Bulk Services B.V. - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Marubeni Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Aditya Birla Group - India
- Salva Resources Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Orica Australia Pty. Ltd.
- AsiaOL BioFuels Corp., Philippines
- Australian Commodity Traders Exchange
- Larsen & Toubro Limited - India
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Mintek Dendrill Indonesia
- Central Java Power - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Siam City Cement - Thailand
- Deloitte Consulting - India
- Chettinad Cement Corporation Ltd - India
- Sindya Power Generating Company Private Ltd
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Jaiprakash Power Ventures ltd
- Lanco Infratech Ltd - India
- Therma Luzon, Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Planning Commission, India
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- London Commodity Brokers - England
- Oldendorff Carriers - Singapore
- Ministry of Mines - Canada
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- Electricity Authority, New Zealand
- Indian Energy Exchange, India
- Chamber of Mines of South Africa
- Ceylon Electricity Board - Sri Lanka
- ASAPP Information Group - India
- Independent Power Producers Association of India
- Standard Chartered Bank - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- CNBM International Corporation - China
- VISA Power Limited - India
- Energy Link Ltd, New Zealand
- Interocean Group of Companies - India
- Timah Investasi Mineral - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- IEA Clean Coal Centre - UK
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- Eastern Energy - Thailand
- Orica Mining Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Agrawal Coal Company - India
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Simpson Spence & Young - Indonesia
- Ambuja Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- Makarim & Taira - Indonesia
- The University of Queensland
- McConnell Dowell - Australia
- Latin American Coal - Colombia
- Energy Development Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Kartika Selabumi Mining - Indonesia
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- Binh Thuan Hamico - Vietnam
- White Energy Company Limited
- Star Paper Mills Limited - India
- Edison Trading Spa - Italy
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Coal and Oil Company - UAE
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Vedanta Resources Plc - India
- Meralco Power Generation, Philippines
- CIMB Investment Bank - Malaysia
|
| |
| |
|
