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.
|
|
Saturday, 21 March 20
PANAMAX: 82,000DWT SHIP AGREED $4,250 FOR A COAL TRIP VIA INDONESIA REDELIVERY SOUTH CHINA - BALTIC BRIEFING
Capesize
The Capesize market made some headway this past week despite being buffeted by the global pandemic storm. With the market in a constan ...
Friday, 20 March 20
VOLATILITY TO INCREASE IN TANKER MARKET FOLLOWING OIL PRICE WAR - DREWRY
Crude oil prices plunged by more than a third in the past week after OPEC+ failed to agree on production cut as demand softened in the aftermath of ...
Friday, 20 March 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Friday, 20 March 20
OIL PRICES COULD FALL BELOW ZERO: ANALYST - FOX BUSINESS
Plunging oil prices could be headed a lot lower – possibly below zero, according to one Wall Street analyst.
West Texas Interm ...
Friday, 20 March 20
84% OF FEBRUARY BUNKER SALES IN SINGAPORE ARE LOW-SULPHUR FUELS - BIMCO
Low-sulphur fuels accounted for 84% of total February sales in Singapore, slightly up from 83% in January. The sale of low-sulphur fuel oil (LSFO) ...
|
|
|
Showing 1056 to 1060 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- Central Java Power - Indonesia
- The State Trading Corporation of India Ltd
- Therma Luzon, Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Manunggal Multi Energi - Indonesia
- Medco Energi Mining Internasional
- Attock Cement Pakistan Limited
- Orica Australia Pty. Ltd.
- Eastern Energy - Thailand
- Mercator Lines Limited - India
- PNOC Exploration Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- London Commodity Brokers - England
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Deloitte Consulting - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maheswari Brothers Coal Limited - India
- Rashtriya Ispat Nigam Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Bayan Resources Tbk. - Indonesia
- Aditya Birla Group - India
- Heidelberg Cement - Germany
- Chettinad Cement Corporation Ltd - India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Anglo American - United Kingdom
- GAC Shipping (India) Pvt Ltd
- TeaM Sual Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- Gujarat Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Larsen & Toubro Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Pendopo Energi Batubara - Indonesia
- Wilmar Investment Holdings
- Antam Resourcindo - Indonesia
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Energy Link Ltd, New Zealand
- Timah Investasi Mineral - Indoneisa
- Interocean Group of Companies - India
- White Energy Company Limited
- Bhatia International Limited - India
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- Ministry of Transport, Egypt
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- Bulk Trading Sa - Switzerland
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Siam City Cement - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Ambuja Cements Ltd - India
- Parliament of New Zealand
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- Bharathi Cement Corporation - India
- Ceylon Electricity Board - Sri Lanka
- Bahari Cakrawala Sebuku - Indonesia
- Mjunction Services Limited - India
- Globalindo Alam Lestari - Indonesia
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- CIMB Investment Bank - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Bhoruka Overseas - Indonesia
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Makarim & Taira - Indonesia
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Intertek Mineral Services - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Makmur.PT - Indonesia
- New Zealand Coal & Carbon
- Australian Coal Association
- Thiess Contractors Indonesia
- Minerals Council of Australia
- Energy Development Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Coal and Oil Company - UAE
- Borneo Indobara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Uttam Galva Steels Limited - India
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- Indika Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Banpu Public Company Limited - Thailand
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- IHS Mccloskey Coal Group - USA
- Power Finance Corporation Ltd., India
- Barasentosa Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- ICICI Bank Limited - India
- Indo Tambangraya Megah - Indonesia
- PTC India Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Port Waratah Coal Services - Australia
- Siam City Cement PLC, Thailand
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- Commonwealth Bank - Australia
- OPG Power Generation Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Directorate Of Revenue Intelligence - India
- Simpson Spence & Young - Indonesia
- Baramulti Group, Indonesia
- GMR Energy Limited - India
- Georgia Ports Authority, United States
- Price Waterhouse Coopers - Russia
- Rio Tinto Coal - Australia
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- San Jose City I Power Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Renaissance Capital - South Africa
- Sindya Power Generating Company Private Ltd
- Parry Sugars Refinery, India
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Malabar Cements Ltd - India
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Orica Mining Services - Indonesia
- Straits Asia Resources Limited - Singapore
- Cigading International Bulk Terminal - Indonesia
- Tata Chemicals Ltd - India
- Altura Mining Limited, Indonesia
- Savvy Resources Ltd - HongKong
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Kartika Selabumi Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Meralco Power Generation, Philippines
- Indogreen Group - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sarangani Energy Corporation, Philippines
- Ministry of Mines - Canada
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Jaiprakash Power Ventures ltd
- Kaltim Prima Coal - Indonesia
- Agrawal Coal Company - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ASAPP Information Group - India
- SMG Consultants - Indonesia
- Samtan Co., Ltd - South Korea
- Madhucon Powers Ltd - India
- Essar Steel Hazira Ltd - India
- Indian Oil Corporation Limited
- IEA Clean Coal Centre - UK
- McConnell Dowell - Australia
- Ind-Barath Power Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- The University of Queensland
- Carbofer General Trading SA - India
- Oldendorff Carriers - Singapore
- Romanian Commodities Exchange
|
| |
| |
|
