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, 05 April 11
DRY BULK MARKET DOWN ON FIRST DAY OF SECOND QUARTER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market began the second quarter on a downward pattern, with the industry’s benchmark, the Baltic Dry Index (BDI) shedding 1.45 pe ...
Monday, 04 April 11
INDONESIA INTERNATIONAL CONFERENCE FOCUS ON INDONESIA'S ECONOMY (IICFIE) 2011 MASTER PLAN TO ACCELERATE THE ECONOMIC DEVELOPMENT
Press Release - Since couple of years, Indonesia's economy show impressive growth. What is the Indonesia's Economic Corridor and the Master plan t ...
Saturday, 02 April 11
TNPL CALLS FOR 160KT OF NON-COKING COAL
COALspot.com - Tamil Nadu Newsprint and Papers Limited (TNPL), is seeking to procure another 160,000 MT +/- 5 percent of Non-Coking imported C ...
Saturday, 02 April 11
THE FREIGHT MARKETS LIKELY TO BE SOFT NEXT WEEK - VISTAAR SINGAPORE
COALspot.com - The freight market softened this week affecting all sectors with BDI down by 65 points (down by 4.10 pct) and closed at 1,520 points. ...
Friday, 01 April 11
SUPRAS EX RICHARDS BAY COAL TERMINAL TO INDIA HOVERING AT $ 25 - 27.00 PMT - FEARNBULK
Handy
Atlantic markets remain stable with more activity from the Black Sea to FEast paying in the mid 20´s on Supras. The USG remains firm p ...
|
|
|
Showing 5316 to 5320 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Indian Energy Exchange, India
- Bangladesh Power Developement Board
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Orica Mining Services - Indonesia
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SN Aboitiz Power Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Minerals Council of Australia
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Oldendorff Carriers - Singapore
- Therma Luzon, Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Intertek Mineral Services - Indonesia
- Edison Trading Spa - Italy
- Parry Sugars Refinery, India
- AsiaOL BioFuels Corp., Philippines
- Simpson Spence & Young - Indonesia
- Power Finance Corporation Ltd., India
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Trasteel International SA, Italy
- MS Steel International - UAE
- Bhoruka Overseas - Indonesia
- Petron Corporation, Philippines
- Antam Resourcindo - Indonesia
- CNBM International Corporation - China
- PetroVietnam Power Coal Import and Supply Company
- Bukit Makmur.PT - Indonesia
- Renaissance Capital - South Africa
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- The University of Queensland
- Orica Australia Pty. Ltd.
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- International Coal Ventures Pvt Ltd - India
- Medco Energi Mining Internasional
- Sical Logistics Limited - India
- Mjunction Services Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- Savvy Resources Ltd - HongKong
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Interocean Group of Companies - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Uttam Galva Steels Limited - India
- ASAPP Information Group - India
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Georgia Ports Authority, United States
- Iligan Light & Power Inc, Philippines
- Meralco Power Generation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Salva Resources Pvt Ltd - India
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Samtan Co., Ltd - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chamber of Mines of South Africa
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- Karaikal Port Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Aditya Birla Group - India
- Ministry of Mines - Canada
- Ambuja Cements Ltd - India
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Cigading International Bulk Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- White Energy Company Limited
- Global Green Power PLC Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Gujarat Mineral Development Corp Ltd - India
- Indo Tambangraya Megah - Indonesia
- Eastern Energy - Thailand
- Thiess Contractors Indonesia
- Attock Cement Pakistan Limited
- Romanian Commodities Exchange
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- Neyveli Lignite Corporation Ltd, - India
- The Treasury - Australian Government
- Gujarat Sidhee Cement - India
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining Corp, Philippines
- Indian Oil Corporation Limited
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Posco Energy - South Korea
- Holcim Trading Pte Ltd - Singapore
- Global Coal Blending Company Limited - Australia
- Tamil Nadu electricity Board
- Wood Mackenzie - Singapore
- Parliament of New Zealand
- Merrill Lynch Commodities Europe
- Krishnapatnam Port Company Ltd. - India
- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Goldman Sachs - Singapore
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Grasim Industreis Ltd - India
- Madhucon Powers Ltd - India
- Heidelberg Cement - Germany
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- San Jose City I Power Corp, Philippines
- Tata Chemicals Ltd - India
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- Alfred C Toepfer International GmbH - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bayan Resources Tbk. - Indonesia
- Baramulti Group, Indonesia
- Electricity Generating Authority of Thailand
- Energy Link Ltd, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Latin American Coal - Colombia
- Kepco SPC Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Altura Mining Limited, Indonesia
- PowerSource Philippines DevCo
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Siam City Cement - Thailand
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Standard Chartered Bank - UAE
- Eastern Coal Council - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- SMG Consultants - Indonesia
- Planning Commission, India
- Kartika Selabumi Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Miang Besar Coal Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Rio Tinto Coal - Australia
- Larsen & Toubro Limited - India
- Indonesian Coal Mining Association
- ICICI Bank Limited - India
- PTC India Limited - India
- New Zealand Coal & Carbon
- Riau Bara Harum - Indonesia
- Global Business Power Corporation, Philippines
- Economic Council, Georgia
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- Ministry of Transport, Egypt
- Vedanta Resources Plc - India
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Semirara Mining and Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Wilmar Investment Holdings
- Vizag Seaport Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Indika Energy - Indonesia
- Deloitte Consulting - India
- Pendopo Energi Batubara - Indonesia
- Anglo American - United Kingdom
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
|
| |
| |
|
