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.
|
|
Sunday, 09 February 20
SUPRAMAX: THE ASIAN ARENA STRUGGLED, A 50,000DWT SHIP FIXING A COAL RUN FROM EAST KALIMANTAN TO INDIA AT $2,000 - THE BALTIC BRIEFING
Capesize
The Capesize market endured another dreadful week of calamitous rate level falls, as the usual season low Q1 period combined with rece ...
Friday, 07 February 20
CIL LOOKING TO TAP NON-POWER SECTORS FOR INCREMENTAL COAL, PTI REPORTED
The miner is looking to ramp up production to meet its targets for the current fiscal at a time when the economic slowdown is impacting demand for ...
Friday, 07 February 20
VIRUS - HIT CHINA MAY NEED MORE IMPORTS OF COAL. NOW COMES THE TRICKY PART - SHIPPING IT THERE: REUTERS
China’s domestic coal mines are struggling to ramp up production in the face of the ongoing coronavirus epidemic. That’s a situation th ...
Friday, 07 February 20
CORONAVIRUS IMPACTING THE GLOBAL SHIPPING INDUSTRY - BIMCO
The outbreak of the novel Coronavirus has dented market sentiment and spooked markets around the globe. When China sneezes, we all catch the flu. T ...
Thursday, 06 February 20
CAPE: WEAK SUPPLY/DEMAND RATIO THE STREETS REMAIN BLOODY FOR THE BIG SHIPS - FEARNLEYS
Cape: With still a weak supply/demand ratio the streets remain bloody for the big ships, and actual spot earnings are close to zero on main short-h ...
|
|
|
Showing 1146 to 1150 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Holcim Trading Pte Ltd - Singapore
- Oldendorff Carriers - Singapore
- Ministry of Transport, Egypt
- Aditya Birla Group - India
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- Sojitz Corporation - Japan
- Global Coal Blending Company Limited - Australia
- Power Finance Corporation Ltd., India
- Sical Logistics Limited - India
- Independent Power Producers Association of India
- Tamil Nadu electricity Board
- Economic Council, Georgia
- Wilmar Investment Holdings
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Latin American Coal - Colombia
- Deloitte Consulting - India
- Banpu Public Company Limited - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- Standard Chartered Bank - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karaikal Port Pvt Ltd - India
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Meralco Power Generation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Aboitiz Power Corporation - Philippines
- Essar Steel Hazira Ltd - India
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- Marubeni Corporation - India
- Bhatia International Limited - India
- Wood Mackenzie - Singapore
- Sinarmas Energy and Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Edison Trading Spa - Italy
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Coastal Gujarat Power Limited - India
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- Chettinad Cement Corporation Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Toyota Tsusho Corporation, Japan
- Ministry of Finance - Indonesia
- Borneo Indobara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Sidhee Cement - India
- Intertek Mineral Services - Indonesia
- Carbofer General Trading SA - India
- PNOC Exploration Corporation - Philippines
- New Zealand Coal & Carbon
- Energy Development Corp, Philippines
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Indonesian Coal Mining Association
- The University of Queensland
- Ind-Barath Power Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Mjunction Services Limited - India
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- IHS Mccloskey Coal Group - USA
- Commonwealth Bank - Australia
- Bayan Resources Tbk. - Indonesia
- Baramulti Group, Indonesia
- Orica Australia Pty. Ltd.
- Sree Jayajothi Cements Limited - India
- Vedanta Resources Plc - India
- Metalloyd Limited - United Kingdom
- Antam Resourcindo - Indonesia
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- San Jose City I Power Corp, Philippines
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- GVK Power & Infra Limited - India
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Mercuria Energy - Indonesia
- Makarim & Taira - Indonesia
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- Interocean Group of Companies - India
- Kepco SPC Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Australian Coal Association
- Straits Asia Resources Limited - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Riau Bara Harum - Indonesia
- Cement Manufacturers Association - India
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Medco Energi Mining Internasional
- International Coal Ventures Pvt Ltd - India
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
- Sakthi Sugars Limited - India
- Grasim Industreis Ltd - India
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Attock Cement Pakistan Limited
- Gujarat Mineral Development Corp Ltd - India
- Larsen & Toubro Limited - India
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- Mercator Lines Limited - India
- Formosa Plastics Group - Taiwan
- Directorate Of Revenue Intelligence - India
- Xindia Steels Limited - India
- Dalmia Cement Bharat India
- London Commodity Brokers - England
- Salva Resources Pvt Ltd - India
- Renaissance Capital - South Africa
- Ambuja Cements Ltd - India
- India Bulls Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- PTC India Limited - India
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- Trasteel International SA, Italy
- Mintek Dendrill Indonesia
- Altura Mining Limited, Indonesia
- TeaM Sual Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Central Electricity Authority - India
- Samtan Co., Ltd - South Korea
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- White Energy Company Limited
- Ceylon Electricity Board - Sri Lanka
- CIMB Investment Bank - Malaysia
- European Bulk Services B.V. - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement - Thailand
- Minerals Council of Australia
- Vizag Seaport Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Bhoruka Overseas - Indonesia
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Merrill Lynch Commodities Europe
- SN Aboitiz Power Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Planning Commission, India
- Global Business Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Leighton Contractors Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Lanco Infratech Ltd - India
- Heidelberg Cement - Germany
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- Bukit Baiduri Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Rio Tinto Coal - Australia
- Neyveli Lignite Corporation Ltd, - India
- TNB Fuel Sdn Bhd - Malaysia
- Posco Energy - South Korea
- Ministry of Mines - Canada
- Thai Mozambique Logistica
- Maharashtra Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
|
| |
| |
|
