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.
|
|
Monday, 27 December 10
RIO TINTO EYES AUSTRALIAN COAL MINER - RTE NEWS
Global resources giant Rio Tinto has made a $3.9 billion bid for Australian coal miner Riversdale.
RTE News reported that, Global resources giant ...
Sunday, 26 December 10
ANGLO SELLS AUSTRALIAN COAL ASSETS - BARCELONA NEWS
Barcelona News reported that, Anglo American has sold off undeveloped Australia coal assets for $577 million.
The global resources giant ha ...
Saturday, 25 December 10
FREIGHT MARKET - LOWEST FIXTURES REPORTED SINCE MID 2009 - CAPT. REDDY
COALspot.com - We wish you a Merry Christmas and a Happy New Year 2011.
The holiday season seems to have severely affected the fr ...
Friday, 24 December 10
CIL SHORTLISTS 21 FIRMS TO IMPORT 250 MT COAL - THE HINDU
The Hindu reported that, Coal India plans to import about 250 million tonnes (mt) over the next 10 years to meet the country's growing requirement. ...
Friday, 24 December 10
DRY BULK OWNERS COULD SOON RECONSIDER SCRAPPING OLDER VESSELS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the dry bulk market close to its lowest levels in months and indeed close to 2010 lows, ship owners could be heading towards scrapyards in a bi ...
|
|
|
Showing 5466 to 5470 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Meenaskhi Energy Private Limited - India
- Simpson Spence & Young - Indonesia
- Karaikal Port Pvt Ltd - India
- Thai Mozambique Logistica
- Jindal Steel & Power Ltd - India
- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Intertek Mineral Services - Indonesia
- Bulk Trading Sa - Switzerland
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- International Coal Ventures Pvt Ltd - India
- Attock Cement Pakistan Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Maheswari Brothers Coal Limited - India
- Manunggal Multi Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Xindia Steels Limited - India
- Sree Jayajothi Cements Limited - India
- Commonwealth Bank - Australia
- Indogreen Group - Indonesia
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- GAC Shipping (India) Pvt Ltd
- Formosa Plastics Group - Taiwan
- Siam City Cement - Thailand
- Carbofer General Trading SA - India
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kohat Cement Company Ltd. - Pakistan
- Malabar Cements Ltd - India
- Rio Tinto Coal - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ambuja Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Latin American Coal - Colombia
- Rashtriya Ispat Nigam Limited - India
- Madhucon Powers Ltd - India
- Semirara Mining Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Parry Sugars Refinery, India
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Parliament of New Zealand
- Sojitz Corporation - Japan
- AsiaOL BioFuels Corp., Philippines
- Bhatia International Limited - India
- Anglo American - United Kingdom
- CNBM International Corporation - China
- Singapore Mercantile Exchange
- Lanco Infratech Ltd - India
- PTC India Limited - India
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Jorong Barutama Greston.PT - Indonesia
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- GVK Power & Infra Limited - India
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- Sical Logistics Limited - India
- Meralco Power Generation, Philippines
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Energy Exchange, India
- Tata Chemicals Ltd - India
- Larsen & Toubro Limited - India
- Banpu Public Company Limited - Thailand
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- Indo Tambangraya Megah - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Wilmar Investment Holdings
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- Directorate General of MIneral and Coal - Indonesia
- Agrawal Coal Company - India
- Sakthi Sugars Limited - India
- Directorate Of Revenue Intelligence - India
- Uttam Galva Steels Limited - India
- GMR Energy Limited - India
- Central Electricity Authority - India
- Vedanta Resources Plc - India
- Trasteel International SA, Italy
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Marubeni Corporation - India
- Ministry of Mines - Canada
- Iligan Light & Power Inc, Philippines
- The Treasury - Australian Government
- Ministry of Transport, Egypt
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- Grasim Industreis Ltd - India
- Australian Coal Association
- MS Steel International - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- White Energy Company Limited
- Jaiprakash Power Ventures ltd
- Chamber of Mines of South Africa
- Kalimantan Lumbung Energi - Indonesia
- Mercator Lines Limited - India
- Orica Australia Pty. Ltd.
- Neyveli Lignite Corporation Ltd, - India
- Orica Mining Services - Indonesia
- Star Paper Mills Limited - India
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Africa Commodities Group - South Africa
- Altura Mining Limited, Indonesia
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Economic Council, Georgia
- South Luzon Thermal Energy Corporation
- Mintek Dendrill Indonesia
- Romanian Commodities Exchange
- Savvy Resources Ltd - HongKong
- Georgia Ports Authority, United States
- Vijayanagar Sugar Pvt Ltd - India
- Independent Power Producers Association of India
- Antam Resourcindo - Indonesia
- SN Aboitiz Power Inc, Philippines
- Interocean Group of Companies - India
- Ceylon Electricity Board - Sri Lanka
- Coastal Gujarat Power Limited - India
- Medco Energi Mining Internasional
- Electricity Authority, New Zealand
- Salva Resources Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Mercuria Energy - Indonesia
- The State Trading Corporation of India Ltd
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- Tamil Nadu electricity Board
- Bhoruka Overseas - Indonesia
- Minerals Council of Australia
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- TeaM Sual Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- IHS Mccloskey Coal Group - USA
- Dalmia Cement Bharat India
- Renaissance Capital - South Africa
- Mjunction Services Limited - India
- Merrill Lynch Commodities Europe
- Cigading International Bulk Terminal - Indonesia
- Planning Commission, India
- Bayan Resources Tbk. - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bharathi Cement Corporation - India
- Oldendorff Carriers - Singapore
- Borneo Indobara - Indonesia
- Sarangani Energy Corporation, Philippines
- Cement Manufacturers Association - India
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Coalindo Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Videocon Industries ltd - India
- Metalloyd Limited - United Kingdom
- The University of Queensland
- Global Business Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Energy Development Corp, Philippines
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- Eastern Energy - Thailand
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- Baramulti Group, Indonesia
- ASAPP Information Group - India
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Pendopo Energi Batubara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Power Finance Corporation Ltd., India
- Indika Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- Heidelberg Cement - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Posco Energy - South Korea
- Asmin Koalindo Tuhup - Indonesia
|
| |
| |
|
