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.
|
|
Tuesday, 14 July 09
NEWCASTLE WEEKLY COAL EXPORTS RISE 11%; SHIP QUEUE DECREASES
Bloomberg reported that, Coal shipments from Australia’s Newcastle port, the world’s biggest export harbor for the fuel, gained 11 ...
Monday, 13 July 09
EXPORT COAL PRODUCTION FROM MOOIPLAATS COULD START IN NOVEMBER
Mining Weekly reported that, South Africa-focused emerging miner Coal of Africa (CoAL) has completed a revised mining layout for its Mooiplaats ...
Monday, 13 July 09
NAPOCOR AWARDS 195,000 T COAL TO INDONESIAN FIRMS
ABC-CBN News reported that, Philippine electricity producer National Power Corp (Napocor) has awarded 195,000 tons in coal supply contracts to two I ...
Monday, 13 July 09
PAKISTAN TO IMPORT ABOUT 2.4 MILLION TONS OF INDONESIAN COAL AND 1.6 MILLION TON OF SOUTH AFRICAN COAL WITHIN NEXT 12 MONTHS
COALspot.com (Pakistan) : Pakistan has exported well over 12 million tons of cement while local sales have dropped a bit with the result 33 million to ...
Monday, 13 July 09
COAL SECTOR IN VIETNAM INCREASE THE TARGET 43 MILLION TONNES THIS YEAR
Asian Mining Stock reported that, there was a change in a very good Coal Mining Industries Group (TKV) that Vietnam has decided to increase coa ...
|
|
|
Showing 6606 to 6610 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- The State Trading Corporation of India Ltd
- Asmin Koalindo Tuhup - Indonesia
- Renaissance Capital - South Africa
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Intertek Mineral Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aditya Birla Group - India
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- MS Steel International - UAE
- Vizag Seaport Private Limited - India
- Orica Australia Pty. Ltd.
- TeaM Sual Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- Sarangani Energy Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Sinarmas Energy and Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Borneo Indobara - Indonesia
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
- Karaikal Port Pvt Ltd - India
- Romanian Commodities Exchange
- Minerals Council of Australia
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement PLC, Thailand
- PowerSource Philippines DevCo
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Carbofer General Trading SA - India
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Edison Trading Spa - Italy
- Mercuria Energy - Indonesia
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- McConnell Dowell - Australia
- Riau Bara Harum - Indonesia
- Independent Power Producers Association of India
- Energy Development Corp, Philippines
- ASAPP Information Group - India
- The University of Queensland
- Oldendorff Carriers - Singapore
- Global Business Power Corporation, Philippines
- Posco Energy - South Korea
- Economic Council, Georgia
- White Energy Company Limited
- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
- South Luzon Thermal Energy Corporation
- Electricity Authority, New Zealand
- Parliament of New Zealand
- Pendopo Energi Batubara - Indonesia
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- Kartika Selabumi Mining - Indonesia
- Mintek Dendrill Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- IEA Clean Coal Centre - UK
- Kobexindo Tractors - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Anglo American - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- SMC Global Power, Philippines
- Ministry of Mines - Canada
- Trasteel International SA, Italy
- Baramulti Group, Indonesia
- Aboitiz Power Corporation - Philippines
- Star Paper Mills Limited - India
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Indian Energy Exchange, India
- Grasim Industreis Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- Indika Energy - Indonesia
- Medco Energi Mining Internasional
- Ambuja Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Manunggal Multi Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Planning Commission, India
- Samtan Co., Ltd - South Korea
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- Savvy Resources Ltd - HongKong
- Iligan Light & Power Inc, Philippines
- ICICI Bank Limited - India
- Alfred C Toepfer International GmbH - Germany
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- Thai Mozambique Logistica
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Meenaskhi Energy Private Limited - India
- Larsen & Toubro Limited - India
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Gujarat Sidhee Cement - India
- Agrawal Coal Company - India
- Australian Commodity Traders Exchange
- Malabar Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- VISA Power Limited - India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- CNBM International Corporation - China
- Bukit Makmur.PT - Indonesia
- New Zealand Coal & Carbon
- Indo Tambangraya Megah - Indonesia
- Lanco Infratech Ltd - India
- Semirara Mining Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Interocean Group of Companies - India
- Dalmia Cement Bharat India
- Sojitz Corporation - Japan
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kideco Jaya Agung - Indonesia
- Uttam Galva Steels Limited - India
- Kaltim Prima Coal - Indonesia
- Petron Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- SN Aboitiz Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Bhatia International Limited - India
- Central Java Power - Indonesia
- San Jose City I Power Corp, Philippines
- Bhushan Steel Limited - India
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Globalindo Alam Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Maheswari Brothers Coal Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coalindo Energy - Indonesia
- Africa Commodities Group - South Africa
- PTC India Limited - India
- International Coal Ventures Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Holcim Trading Pte Ltd - Singapore
- Bangladesh Power Developement Board
- Sindya Power Generating Company Private Ltd
- Coal and Oil Company - UAE
- Cement Manufacturers Association - India
- Heidelberg Cement - Germany
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Indonesian Coal Mining Association
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
- Videocon Industries ltd - India
- Thiess Contractors Indonesia
- Mjunction Services Limited - India
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Vedanta Resources Plc - India
- Electricity Generating Authority of Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Marubeni Corporation - India
- Power Finance Corporation Ltd., India
- India Bulls Power Limited - India
- Merrill Lynch Commodities Europe
- Energy Link Ltd, New Zealand
- Price Waterhouse Coopers - Russia
|
| |
| |
|
