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, 15 February 10
INDONESIA IN TALKS TO RESOLVE BANPU MINE CLOSURE
Indonesia is seeking to resolve a land permiting problem resulting in the closure of a coal mine in Kalimantan operated by a unit of Thailand's top ...
Monday, 15 February 10
PVT ENTRY IN COAL MINING TO BE DELAYED
Entry of private players in coal mining will be delayed. Contrary to expectations, the coal ministry will not move in the Budget session a bill that ...
Sunday, 14 February 10
NEWCASTLE STEAM COAL TRADES AT US$ 91 TO US$ 92
Reuters reported that prompt cargo prices for coal delivered into Europe were largely unchanged recently after a day of subdued trading.
European ...
Saturday, 13 February 10
THE FREIGHT MARKET CONTINUED TO BE WEAK THIS WEEK - CAPT. REDDY
COALspot.com (Singapore): The freight market continued to be weak this week. There have been quite a few spot vessels open Far east and have been fo ...
Saturday, 13 February 10
INDONESIA ISSUES NEW MINING REGULATIONS
Indonesia has issued two new regulations under its mining law to allow firms to start obtaining mining permits, in a move that should increase certa ...
|
|
|
Showing 5996 to 6000 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- IHS Mccloskey Coal Group - USA
- Romanian Commodities Exchange
- Straits Asia Resources Limited - Singapore
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Global Coal Blending Company Limited - Australia
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Anglo American - United Kingdom
- Timah Investasi Mineral - Indoneisa
- Manunggal Multi Energi - Indonesia
- Makarim & Taira - Indonesia
- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- Jaiprakash Power Ventures ltd
- Central Java Power - Indonesia
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- The Treasury - Australian Government
- Bukit Baiduri Energy - Indonesia
- Indika Energy - Indonesia
- Parliament of New Zealand
- Directorate Of Revenue Intelligence - India
- Vijayanagar Sugar Pvt Ltd - India
- Commonwealth Bank - Australia
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- Standard Chartered Bank - UAE
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Planning Commission, India
- Indian Oil Corporation Limited
- Australian Coal Association
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Vizag Seaport Private Limited - India
- Heidelberg Cement - Germany
- Siam City Cement PLC, Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
- Aditya Birla Group - India
- New Zealand Coal & Carbon
- Semirara Mining Corp, Philippines
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Borneo Indobara - Indonesia
- Star Paper Mills Limited - India
- White Energy Company Limited
- Mintek Dendrill Indonesia
- Oldendorff Carriers - Singapore
- Eastern Coal Council - USA
- The University of Queensland
- Billiton Holdings Pty Ltd - Australia
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Barasentosa Lestari - Indonesia
- Kumho Petrochemical, South Korea
- CNBM International Corporation - China
- Meralco Power Generation, Philippines
- Malabar Cements Ltd - India
- Attock Cement Pakistan Limited
- McConnell Dowell - Australia
- Australian Commodity Traders Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- San Jose City I Power Corp, Philippines
- Interocean Group of Companies - India
- Global Business Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Bulk Trading Sa - Switzerland
- Goldman Sachs - Singapore
- Therma Luzon, Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- SMG Consultants - Indonesia
- MS Steel International - UAE
- Marubeni Corporation - India
- ASAPP Information Group - India
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- Aboitiz Power Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Mercuria Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Larsen & Toubro Limited - India
- Wood Mackenzie - Singapore
- Eastern Energy - Thailand
- Orica Mining Services - Indonesia
- PTC India Limited - India
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Vedanta Resources Plc - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Agrawal Coal Company - India
- Uttam Galva Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- South Luzon Thermal Energy Corporation
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sical Logistics Limited - India
- Chamber of Mines of South Africa
- Ministry of Mines - Canada
- Chettinad Cement Corporation Ltd - India
- ICICI Bank Limited - India
- Ind-Barath Power Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Independent Power Producers Association of India
- GMR Energy Limited - India
- Coalindo Energy - Indonesia
- Sakthi Sugars Limited - India
- Bukit Makmur.PT - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Karbindo Abesyapradhi - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Deloitte Consulting - India
- Maheswari Brothers Coal Limited - India
- Renaissance Capital - South Africa
- International Coal Ventures Pvt Ltd - India
- Cement Manufacturers Association - India
- TNB Fuel Sdn Bhd - Malaysia
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Edison Trading Spa - Italy
- Sindya Power Generating Company Private Ltd
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Georgia Ports Authority, United States
- Formosa Plastics Group - Taiwan
- TeaM Sual Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Mjunction Services Limited - India
- Power Finance Corporation Ltd., India
- Bukit Asam (Persero) Tbk - Indonesia
- Central Electricity Authority - India
- Dalmia Cement Bharat India
- Madhucon Powers Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Minerals Council of Australia
- Tata Chemicals Ltd - India
- Indo Tambangraya Megah - Indonesia
- GAC Shipping (India) Pvt Ltd
- Mercator Lines Limited - India
- Medco Energi Mining Internasional
- Maharashtra Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- Grasim Industreis Ltd - India
- Ministry of Transport, Egypt
- Jindal Steel & Power Ltd - India
- The State Trading Corporation of India Ltd
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Latin American Coal - Colombia
- Pendopo Energi Batubara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Trasteel International SA, Italy
- Bangladesh Power Developement Board
- Bharathi Cement Corporation - India
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- Baramulti Group, Indonesia
- CIMB Investment Bank - Malaysia
- Energy Link Ltd, New Zealand
- Kaltim Prima Coal - Indonesia
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Bayan Resources Tbk. - Indonesia
- Kideco Jaya Agung - Indonesia
- VISA Power Limited - India
- Indogreen Group - Indonesia
- Sojitz Corporation - Japan
- Iligan Light & Power Inc, Philippines
- Lanco Infratech Ltd - India
- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Energy Development Corp, Philippines
|
| |
| |
|
