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, 11 November 09
INDONESIA ASKS DOMESTIC COAL FIRMS TO SET ASIDE 30PCT OF OUTPUT
Indonesian government said that it had asked domestic coal producers to set aside 30% of their output next year to meet demand from new coal fired p ...
Wednesday, 11 November 09
MINING ACQUISITIONS BECOMING MORE STRATEGIC - E&Y
Mining Weekly reported that, Although miners around the world are looking to position themselves for growth, companies are being more selective when ...
Tuesday, 10 November 09
THAI COAL MINER BANPU Q3 NET UP, BEATS FORECAST
Reuters reported that, Thailand's top coal miner, Banpu, said on Tuesday its third-quarter net earnings rose a higher-than-expected 22 percent, hel ...
Monday, 09 November 09
NAPOCOR DEFERS 50,000 T COAL TENDER
Top Philippine electricity producer National Power Corp. (Napocor) has indefinitely postponed a tender for supply of 50,000 tons of steam coal sched ...
Monday, 09 November 09
SAM'S SEAFOOD HOLDINGS SET TO COMMENCE DRILLING AT INDONESIAN COAL PROJECT
Proactive Investors reported that, Sam's Seafood Holdings is preparing to kick off diamond drilling at the company's Indonesian coal project after ...
|
|
|
Showing 6261 to 6265 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- Malabar Cements Ltd - India
- Energy Development Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
- Electricity Authority, New Zealand
- Bhoruka Overseas - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Sical Logistics Limited - India
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Oldendorff Carriers - Singapore
- Samtan Co., Ltd - South Korea
- Agrawal Coal Company - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ICICI Bank Limited - India
- Jindal Steel & Power Ltd - India
- Sree Jayajothi Cements Limited - India
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GMR Energy Limited - India
- Latin American Coal - Colombia
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- GAC Shipping (India) Pvt Ltd
- Simpson Spence & Young - Indonesia
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Sinarmas Energy and Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- Vedanta Resources Plc - India
- MS Steel International - UAE
- The State Trading Corporation of India Ltd
- Global Business Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Banpu Public Company Limited - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thiess Contractors Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- PTC India Limited - India
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Rio Tinto Coal - Australia
- Essar Steel Hazira Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- Tata Chemicals Ltd - India
- Australian Coal Association
- Semirara Mining Corp, Philippines
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Antam Resourcindo - Indonesia
- Indian Energy Exchange, India
- Price Waterhouse Coopers - Russia
- Indian Oil Corporation Limited
- Petrochimia International Co. Ltd.- Taiwan
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Kideco Jaya Agung - Indonesia
- Lanco Infratech Ltd - India
- Renaissance Capital - South Africa
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- India Bulls Power Limited - India
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Planning Commission, India
- Ceylon Electricity Board - Sri Lanka
- Bharathi Cement Corporation - India
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Finance - Indonesia
- Global Coal Blending Company Limited - Australia
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Larsen & Toubro Limited - India
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Sojitz Corporation - Japan
- VISA Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Timah Investasi Mineral - Indoneisa
- Mercuria Energy - Indonesia
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- Electricity Generating Authority of Thailand
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Central Electricity Authority - India
- Bulk Trading Sa - Switzerland
- Coalindo Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Singapore Mercantile Exchange
- Iligan Light & Power Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kobexindo Tractors - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Global Green Power PLC Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Kartika Selabumi Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- SMG Consultants - Indonesia
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- Star Paper Mills Limited - India
- Videocon Industries ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karaikal Port Pvt Ltd - India
- CNBM International Corporation - China
- Neyveli Lignite Corporation Ltd, - India
- Pendopo Energi Batubara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Kepco SPC Power Corporation, Philippines
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Billiton Holdings Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Power Finance Corporation Ltd., India
- Gujarat Sidhee Cement - India
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Trasteel International SA, Italy
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- Maharashtra Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Transport, Egypt
- Orica Mining Services - Indonesia
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- Uttam Galva Steels Limited - India
- The University of Queensland
- Indogreen Group - Indonesia
- Xindia Steels Limited - India
- The Treasury - Australian Government
- Economic Council, Georgia
- Minerals Council of Australia
- Parliament of New Zealand
- Straits Asia Resources Limited - Singapore
- PNOC Exploration Corporation - Philippines
- Africa Commodities Group - South Africa
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- White Energy Company Limited
- Mjunction Services Limited - India
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Orica Australia Pty. Ltd.
- Altura Mining Limited, Indonesia
- Kumho Petrochemical, South Korea
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- Deloitte Consulting - India
- Ind-Barath Power Infra Limited - India
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- Ministry of Mines - Canada
|
| |
| |
|
