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, 06 September 11
INDONESIAS PROPOSED COAL EXPORT BAN MAY HAVE IMPACT ON THE INDIAN POWER SECTOR - DIPESH DIPU
COALspot.com - This is a special interview about Indonesian proposed coal export ban by 2014, with Mr. Dipesh Dipu, Director of Deloitte Touche Tohm ...
Tuesday, 06 September 11
SEMEN GRESIK TO ACQUIRE COAL MINE FOR RP. 1 TRILLION
COALspot.com - PT Semen Gresik Tbk (SMGR) is planning to acquire a low calorific value coal concession (IUP). According to Semen Gresik, the coal mi ...
Tuesday, 06 September 11
DRY BULK MARKETS RALLY POWERS THROUGH TO NEW WEEK, BUT A CORRECTION COULD BE OVERDUE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market’s freights rates kept leaping forwards during the beginning of the week, with the industry’s benchmark, the Baltic D ...
Monday, 05 September 11
TNPL POSTPONES BID OPENING UNTIL 12 SEPTEMBER 2011
COALspot.com - TNPL has postponed submission of the offer until 12 September 2011 on request from the supplier, an Indian trader said.
Due to Ram ...
Saturday, 03 September 11
FEW SHIPS REPORTED FIXED FROM INDONESIA TO INDIA - VISTAAR
COALspot.com - The freight market continued the upward trend during last week with BDI up by about 13 pct closing at 1,740 points and cape index up ...
|
|
|
Showing 5101 to 5105 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Sojitz Corporation - Japan
- LBH Netherlands Bv - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Medco Energi Mining Internasional
- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Aditya Birla Group - India
- AsiaOL BioFuels Corp., Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Uttam Galva Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Gujarat Sidhee Cement - India
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- Parliament of New Zealand
- Indonesian Coal Mining Association
- Xindia Steels Limited - India
- San Jose City I Power Corp, Philippines
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Petron Corporation, Philippines
- Makarim & Taira - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Banpu Public Company Limited - Thailand
- Rashtriya Ispat Nigam Limited - India
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Ind-Barath Power Infra Limited - India
- Power Finance Corporation Ltd., India
- Holcim Trading Pte Ltd - Singapore
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- SMG Consultants - Indonesia
- Mjunction Services Limited - India
- Sakthi Sugars Limited - India
- Directorate Of Revenue Intelligence - India
- Central Java Power - Indonesia
- Romanian Commodities Exchange
- Semirara Mining and Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Sree Jayajothi Cements Limited - India
- Tata Chemicals Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- Therma Luzon, Inc, Philippines
- Trasteel International SA, Italy
- Sarangani Energy Corporation, Philippines
- The Treasury - Australian Government
- Coal and Oil Company - UAE
- Indian Energy Exchange, India
- Siam City Cement - Thailand
- GVK Power & Infra Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Minerals Council of Australia
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Binh Thuan Hamico - Vietnam
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- Star Paper Mills Limited - India
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Electricity Authority, New Zealand
- Interocean Group of Companies - India
- Bayan Resources Tbk. - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bhushan Steel Limited - India
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Ambuja Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- White Energy Company Limited
- Sindya Power Generating Company Private Ltd
- Samtan Co., Ltd - South Korea
- Marubeni Corporation - India
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- Neyveli Lignite Corporation Ltd, - India
- Energy Link Ltd, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Makmur.PT - Indonesia
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- ICICI Bank Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- GMR Energy Limited - India
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Merrill Lynch Commodities Europe
- Jindal Steel & Power Ltd - India
- Anglo American - United Kingdom
- Ceylon Electricity Board - Sri Lanka
- Kohat Cement Company Ltd. - Pakistan
- Singapore Mercantile Exchange
- Planning Commission, India
- Bangladesh Power Developement Board
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Thai Mozambique Logistica
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Standard Chartered Bank - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Bhoruka Overseas - Indonesia
- Manunggal Multi Energi - Indonesia
- The University of Queensland
- Bulk Trading Sa - Switzerland
- Thiess Contractors Indonesia
- Wood Mackenzie - Singapore
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Posco Energy - South Korea
- Vijayanagar Sugar Pvt Ltd - India
- New Zealand Coal & Carbon
- Kideco Jaya Agung - Indonesia
- PTC India Limited - India
- Commonwealth Bank - Australia
- Sical Logistics Limited - India
- Lanco Infratech Ltd - India
- Rio Tinto Coal - Australia
- ASAPP Information Group - India
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- MS Steel International - UAE
- International Coal Ventures Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- Metalloyd Limited - United Kingdom
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- Borneo Indobara - Indonesia
- Tamil Nadu electricity Board
- Miang Besar Coal Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Directorate General of MIneral and Coal - Indonesia
- CIMB Investment Bank - Malaysia
- Cement Manufacturers Association - India
- Aboitiz Power Corporation - Philippines
- Edison Trading Spa - Italy
- IEA Clean Coal Centre - UK
- OPG Power Generation Pvt Ltd - India
- Larsen & Toubro Limited - India
- Eastern Coal Council - USA
- Coastal Gujarat Power Limited - India
- Renaissance Capital - South Africa
- Chettinad Cement Corporation Ltd - India
- Heidelberg Cement - Germany
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Leighton Contractors Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Oldendorff Carriers - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Africa Commodities Group - South Africa
- Indogreen Group - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Price Waterhouse Coopers - Russia
- SN Aboitiz Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Salva Resources Pvt Ltd - India
- McConnell Dowell - Australia
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- PetroVietnam Power Coal Import and Supply Company
- Meralco Power Generation, Philippines
- London Commodity Brokers - England
- Dalmia Cement Bharat India
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Intertek Mineral Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kaltim Prima Coal - Indonesia
- Latin American Coal - Colombia
- IHS Mccloskey Coal Group - USA
- Toyota Tsusho Corporation, Japan
- Central Electricity Authority - India
- Kumho Petrochemical, South Korea
- Goldman Sachs - Singapore
- Agrawal Coal Company - India
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- Bukit Baiduri Energy - Indonesia
- CNBM International Corporation - China
|
| |
| |
|
