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, 01 October 10
COAL TRADERS POWER FOREIGN ASSET BUYS - ECONOMIC TIMES
Economic Times reported that, the rush to own coal assets is leading to innovative alliances. are teaming up with utilities like , Reliance Power an ...
Thursday, 30 September 10
LOW CALORIFIC VALUE COAL MAY BE SOLD BELOW COAL REFERENCE PRICE IN INDONESIA
COALspot.com: Indonesia, the world’s largest coal exporter has issued another ministerial decree to regulate the selling price of coal of Indo ...
Thursday, 30 September 10
INITIAL PHASE OF MOATIZE MINING BY EARLY NOVEMBER - ALL AFRICA
All Africa report that, the initial phase of mining coal at Moatize, in the western Mozambican province of Tete, will begin by early November, and t ...
Thursday, 30 September 10
THE PANAMAX CONTINUED ITS DOWNWARD TREND FROM LAST WEEK - FEARNBULK
HANDY
Activity remains slow this week combined with a lack of fresh enquiry and tonnage over-supply in the Atlantic. Indexes are all negative exce ...
Thursday, 30 September 10
INDONESIAN COAL FOR POWER PLANT - LANKA GAZETTE
Lanka Gazette reported that, A cargo vessel with coal on board to generate electricity for the Norochcholai Coal Power Plant will arrive in Sri Lank ...
|
|
|
Showing 5586 to 5590 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Rio Tinto Coal - Australia
- Gujarat Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Miang Besar Coal Terminal - Indonesia
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Kohat Cement Company Ltd. - Pakistan
- Wilmar Investment Holdings
- ICICI Bank Limited - India
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Kaltim Prima Coal - Indonesia
- Ministry of Mines - Canada
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Singapore Mercantile Exchange
- Agrawal Coal Company - India
- Attock Cement Pakistan Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Trasteel International SA, Italy
- Africa Commodities Group - South Africa
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- White Energy Company Limited
- Economic Council, Georgia
- Ceylon Electricity Board - Sri Lanka
- Antam Resourcindo - Indonesia
- International Coal Ventures Pvt Ltd - India
- Malabar Cements Ltd - India
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Timah Investasi Mineral - Indoneisa
- Kobexindo Tractors - Indoneisa
- Heidelberg Cement - Germany
- Samtan Co., Ltd - South Korea
- Meenaskhi Energy Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- Indika Energy - Indonesia
- ASAPP Information Group - India
- Manunggal Multi Energi - Indonesia
- Posco Energy - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Independent Power Producers Association of India
- Pipit Mutiara Jaya. PT, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Dalmia Cement Bharat India
- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Bukit Baiduri Energy - Indonesia
- Bhushan Steel Limited - India
- Coal and Oil Company - UAE
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Coastal Gujarat Power Limited - India
- Thiess Contractors Indonesia
- CNBM International Corporation - China
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Indian Oil Corporation Limited
- Merrill Lynch Commodities Europe
- Romanian Commodities Exchange
- Global Green Power PLC Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Mjunction Services Limited - India
- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Planning Commission, India
- Intertek Mineral Services - Indonesia
- Vedanta Resources Plc - India
- Kideco Jaya Agung - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- Anglo American - United Kingdom
- Power Finance Corporation Ltd., India
- Xindia Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Oldendorff Carriers - Singapore
- Chamber of Mines of South Africa
- Siam City Cement - Thailand
- SMC Global Power, Philippines
- Port Waratah Coal Services - Australia
- Borneo Indobara - Indonesia
- Bhoruka Overseas - Indonesia
- Therma Luzon, Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Ministry of Transport, Egypt
- PTC India Limited - India
- Carbofer General Trading SA - India
- Indogreen Group - Indonesia
- The University of Queensland
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- Formosa Plastics Group - Taiwan
- Aditya Birla Group - India
- Maharashtra Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- PNOC Exploration Corporation - Philippines
- Star Paper Mills Limited - India
- MS Steel International - UAE
- Kumho Petrochemical, South Korea
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- Edison Trading Spa - Italy
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Central Electricity Authority - India
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Cement Manufacturers Association - India
- Jorong Barutama Greston.PT - Indonesia
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Lanco Infratech Ltd - India
- Bukit Makmur.PT - Indonesia
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- Goldman Sachs - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sarangani Energy Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Makarim & Taira - Indonesia
- Central Java Power - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- Pendopo Energi Batubara - Indonesia
- Karaikal Port Pvt Ltd - India
- Latin American Coal - Colombia
- GVK Power & Infra Limited - India
- Indian Energy Exchange, India
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Maheswari Brothers Coal Limited - India
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate Of Revenue Intelligence - India
- Madhucon Powers Ltd - India
- Eastern Coal Council - USA
- Renaissance Capital - South Africa
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- Iligan Light & Power Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement PLC, Thailand
- New Zealand Coal & Carbon
- Tamil Nadu electricity Board
- Tata Chemicals Ltd - India
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Australian Coal Association
- Deloitte Consulting - India
- Videocon Industries ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- CIMB Investment Bank - Malaysia
- Billiton Holdings Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Riau Bara Harum - Indonesia
- Coalindo Energy - Indonesia
- Orica Mining Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Semirara Mining Corp, Philippines
- PowerSource Philippines DevCo
- GMR Energy Limited - India
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Meralco Power Generation, Philippines
- LBH Netherlands Bv - Netherlands
- SMG Consultants - Indonesia
- Bangladesh Power Developement Board
- Australian Commodity Traders Exchange
- Energy Development Corp, Philippines
- Uttam Galva Steels Limited - India
- Altura Mining Limited, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sree Jayajothi Cements Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Thai Mozambique Logistica
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Larsen & Toubro Limited - India
- Minerals Council of Australia
- Baramulti Group, Indonesia
- Binh Thuan Hamico - Vietnam
- Commonwealth Bank - Australia
- Mercator Lines Limited - India
- Aboitiz Power Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Jaiprakash Power Ventures ltd
|
| |
| |
|
