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.
|
|
Wednesday, 06 January 10
BUMI SHARES UP AS OVERALL PERFORMANCE BEATS PREDICTIONS
The world’s largest thermal coal exporter PT Bumi Resources saw its shares jump 10 percent to Rp 2,675 ($29 US cents) on Tuesday after the com ...
Wednesday, 06 January 10
INDIA MAY HAVE BECOME TOP BUYER OF SOUTH AFRICAN COAL
India may have overtaken Europe for the first time as the biggest purchaser of South African coal in 2009, according to Raymond Chirwa, Richards Bay ...
Wednesday, 06 January 10
COAL PEAK RECEDES INTO THE FAR DISTANCE
COALspot.com (German): Coal will be available to mankind as an energy source for the next 120 years.
The German Coal Importer Association has ca ...
Tuesday, 05 January 10
SUPRAMAX MARKET REMAINED QUIET OVER THE LAST 10 DAYS BRS - DRY BULK
Despite a damp end to the year for bulk rates, shipping has weathered the storm far better than was initially expected in the wake of the financ ...
Tuesday, 05 January 10
WINTER WEATHER SPIKES COAL PRICES - CHINA UPDATE
Cold weather is driving coal prices higher and will lend the advantage in annual negotiations to suppliers, analysts said, predicting that the risin ...
|
|
|
Showing 6116 to 6120 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Sojitz Corporation - Japan
- Miang Besar Coal Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Banpu Public Company Limited - Thailand
- Indian Energy Exchange, India
- Parliament of New Zealand
- Chettinad Cement Corporation Ltd - India
- Australian Coal Association
- Coal and Oil Company - UAE
- Thai Mozambique Logistica
- Indonesian Coal Mining Association
- Altura Mining Limited, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- TNB Fuel Sdn Bhd - Malaysia
- Savvy Resources Ltd - HongKong
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Semirara Mining Corp, Philippines
- Barasentosa Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- VISA Power Limited - India
- Vedanta Resources Plc - India
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Bhatia International Limited - India
- TeaM Sual Corporation - Philippines
- The University of Queensland
- Kepco SPC Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Directorate Of Revenue Intelligence - India
- South Luzon Thermal Energy Corporation
- Holcim Trading Pte Ltd - Singapore
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Parry Sugars Refinery, India
- Mercuria Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Binh Thuan Hamico - Vietnam
- Cement Manufacturers Association - India
- Medco Energi Mining Internasional
- Kumho Petrochemical, South Korea
- Petron Corporation, Philippines
- PowerSource Philippines DevCo
- Edison Trading Spa - Italy
- Bulk Trading Sa - Switzerland
- CNBM International Corporation - China
- Jaiprakash Power Ventures ltd
- Marubeni Corporation - India
- Xindia Steels Limited - India
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- Eastern Coal Council - USA
- Georgia Ports Authority, United States
- Siam City Cement PLC, Thailand
- Ceylon Electricity Board - Sri Lanka
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Energy Development Corp, Philippines
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Wood Mackenzie - Singapore
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Kaltim Prima Coal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Global Coal Blending Company Limited - Australia
- Madhucon Powers Ltd - India
- Oldendorff Carriers - Singapore
- Kobexindo Tractors - Indoneisa
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- McConnell Dowell - Australia
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Gujarat Electricity Regulatory Commission - India
- Mercator Lines Limited - India
- Mjunction Services Limited - India
- Indika Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Australian Commodity Traders Exchange
- Energy Link Ltd, New Zealand
- Kideco Jaya Agung - Indonesia
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- Rio Tinto Coal - Australia
- Kohat Cement Company Ltd. - Pakistan
- Malabar Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Coalindo Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Formosa Plastics Group - Taiwan
- Krishnapatnam Port Company Ltd. - India
- Bukit Baiduri Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Electricity Authority, New Zealand
- Sical Logistics Limited - India
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Tamil Nadu electricity Board
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- Ministry of Mines - Canada
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Vijayanagar Sugar Pvt Ltd - India
- Africa Commodities Group - South Africa
- CIMB Investment Bank - Malaysia
- Bangladesh Power Developement Board
- Jorong Barutama Greston.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Jindal Steel & Power Ltd - India
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Siam City Cement - Thailand
- Indo Tambangraya Megah - Indonesia
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Goldman Sachs - Singapore
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- Makarim & Taira - Indonesia
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GMR Energy Limited - India
- ICICI Bank Limited - India
- Sakthi Sugars Limited - India
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- MS Steel International - UAE
- PTC India Limited - India
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Samtan Co., Ltd - South Korea
- Larsen & Toubro Limited - India
- Port Waratah Coal Services - Australia
- Kapuas Tunggal Persada - Indonesia
- Global Business Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- Pendopo Energi Batubara - Indonesia
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Interocean Group of Companies - India
- Sree Jayajothi Cements Limited - India
- Karaikal Port Pvt Ltd - India
- Agrawal Coal Company - India
- Borneo Indobara - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karbindo Abesyapradhi - Indoneisa
- Anglo American - United Kingdom
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Straits Asia Resources Limited - Singapore
- Videocon Industries ltd - India
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- Gujarat Sidhee Cement - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The Treasury - Australian Government
- Tata Chemicals Ltd - India
- IEA Clean Coal Centre - UK
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Finance - Indonesia
- Merrill Lynch Commodities Europe
- Renaissance Capital - South Africa
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Central Java Power - Indonesia
- White Energy Company Limited
- Billiton Holdings Pty Ltd - Australia
- Commonwealth Bank - Australia
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
|
| |
| |
|
