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, 06 August 10
KRISHNAPATNAM PORT WINS NON MAJOR PORT AWARD 2ND TIME IN A ROW
COAlspot.com ( Press Release) Krishnapatnam Port, the world-class port on the Indian horizon, took the top honors for the second time in a row, in t ...
Friday, 06 August 10
POLANDS KOPEX GROUP DEVELOPS COAL MINE IN INDONESIA
Polishmarket reported that, Polish mining concern Kopex Group, , is to build the first in Indonesia mechanised underground coal mine. The group is c ...
Thursday, 05 August 10
MORATORIUM MAY HURT NEW PROJECTS: MINING GROUP
The government’s proposed two-year moratorium on issuing new concessions to convert forests and peatlands to other uses may hinder new mining ...
Thursday, 05 August 10
IRON ORE EXPORT BAN COMPOUNDS PROBLEMS OF INDUSTRY - BUSINESS STANDARD
Forex loss of Rs 300 crore (US$ 65.63 million) ; truckers, ports, Railways bear the brunt
The Karnataka government’s move to ban the export ...
Thursday, 05 August 10
DRY BULK LOOKING TO CHINA FOR A NEW RALLY, BUT INDIA COULD BE THIS YEAR'S SURPRISE
The dry bulk market’s rebound has hit a “wall” this week, with the industry’s benchmark, the BDI (Baltic Dry Index) ending i ...
|
|
|
Showing 5676 to 5680 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- San Jose City I Power Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- Sarangani Energy Corporation, Philippines
- Simpson Spence & Young - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- The State Trading Corporation of India Ltd
- Interocean Group of Companies - India
- Attock Cement Pakistan Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- Tamil Nadu electricity Board
- Kepco SPC Power Corporation, Philippines
- Indonesian Coal Mining Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Heidelberg Cement - Germany
- Lanco Infratech Ltd - India
- Sical Logistics Limited - India
- Commonwealth Bank - Australia
- Indogreen Group - Indonesia
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
- ASAPP Information Group - India
- Miang Besar Coal Terminal - Indonesia
- Wilmar Investment Holdings
- Grasim Industreis Ltd - India
- Savvy Resources Ltd - HongKong
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- Anglo American - United Kingdom
- MS Steel International - UAE
- South Luzon Thermal Energy Corporation
- Semirara Mining Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- Thai Mozambique Logistica
- Wood Mackenzie - Singapore
- Global Coal Blending Company Limited - Australia
- ICICI Bank Limited - India
- Indo Tambangraya Megah - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Economic Council, Georgia
- Manunggal Multi Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kaltim Prima Coal - Indonesia
- Madhucon Powers Ltd - India
- Indian Energy Exchange, India
- PowerSource Philippines DevCo
- Riau Bara Harum - Indonesia
- Indika Energy - Indonesia
- IEA Clean Coal Centre - UK
- Bharathi Cement Corporation - India
- Trasteel International SA, Italy
- Minerals Council of Australia
- CNBM International Corporation - China
- Kalimantan Lumbung Energi - Indonesia
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Vizag Seaport Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Central Java Power - Indonesia
- Intertek Mineral Services - Indonesia
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Makarim & Taira - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Port Waratah Coal Services - Australia
- Kapuas Tunggal Persada - Indonesia
- Ambuja Cements Ltd - India
- Australian Commodity Traders Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Carbofer General Trading SA - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tata Chemicals Ltd - India
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- Kideco Jaya Agung - Indonesia
- Meralco Power Generation, Philippines
- Essar Steel Hazira Ltd - India
- Videocon Industries ltd - India
- New Zealand Coal & Carbon
- Meenaskhi Energy Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Aboitiz Power Corporation - Philippines
- White Energy Company Limited
- Sree Jayajothi Cements Limited - India
- Agrawal Coal Company - India
- Ministry of Transport, Egypt
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement - Thailand
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- Salva Resources Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Business Power Corporation, Philippines
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Krishnapatnam Port Company Ltd. - India
- Price Waterhouse Coopers - Russia
- Global Green Power PLC Corporation, Philippines
- Thiess Contractors Indonesia
- Ministry of Finance - Indonesia
- Singapore Mercantile Exchange
- Semirara Mining and Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Kobexindo Tractors - Indoneisa
- Cement Manufacturers Association - India
- Independent Power Producers Association of India
- Coalindo Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Banpu Public Company Limited - Thailand
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Marubeni Corporation - India
- McConnell Dowell - Australia
- PTC India Limited - India
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- Bhushan Steel Limited - India
- London Commodity Brokers - England
- Larsen & Toubro Limited - India
- Formosa Plastics Group - Taiwan
- Goldman Sachs - Singapore
- Cigading International Bulk Terminal - Indonesia
- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Africa Commodities Group - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Timah Investasi Mineral - Indoneisa
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Holcim Trading Pte Ltd - Singapore
- Parliament of New Zealand
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Bangladesh Power Developement Board
- Parry Sugars Refinery, India
- Power Finance Corporation Ltd., India
- Antam Resourcindo - Indonesia
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Borneo Indobara - Indonesia
- Rio Tinto Coal - Australia
- The University of Queensland
- Bahari Cakrawala Sebuku - Indonesia
- OPG Power Generation Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- TNB Fuel Sdn Bhd - Malaysia
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- SMG Consultants - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SN Aboitiz Power Inc, Philippines
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- Electricity Generating Authority of Thailand
- Oldendorff Carriers - Singapore
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Ministry of Mines - Canada
- PetroVietnam Power Coal Import and Supply Company
- Australian Coal Association
- Sojitz Corporation - Japan
- Bulk Trading Sa - Switzerland
- Directorate General of MIneral and Coal - Indonesia
- Orica Mining Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indian Oil Corporation Limited
- Metalloyd Limited - United Kingdom
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- Kumho Petrochemical, South Korea
- Energy Link Ltd, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Mercator Lines Limited - India
- VISA Power Limited - India
- Chamber of Mines of South Africa
- Xindia Steels Limited - India
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Planning Commission, India
- Asmin Koalindo Tuhup - Indonesia
- LBH Netherlands Bv - Netherlands
- Coastal Gujarat Power Limited - India
- Aditya Birla Group - India
- Star Paper Mills Limited - India
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Gujarat Sidhee Cement - India
|
| |
| |
|
