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, 25 March 23
COAL INDIA HAS STRONG CASE TO INCREASE PRICES, TALKS ON: CMD AGRAWAL - BUSINESS STANDARD
Coal India (CIL) Chairman and Managing Director Pramod Agrawal said on Monday there is a “strong case” for increasing coal prices, and ...
Saturday, 25 March 23
ASIAN CRUDE PALM OIL WATCH 1Q23 - FITCH RATINGS
Malaysian benchmark crude palm oil (CPO) spot prices have averaged around USD915 per tonne (t) so far in 1Q23, sharply lower than the average of ar ...
Saturday, 25 March 23
INDONESIA’S COAL EXPORT INCREASED BY 21.0% YOY TO 388.4 MLN T IN 2022 - BANCHERO COSTA
After a slow start in the first quarter, global coal trade has really picked up pace last year, and is now fully back to pre-Covid levels. In the f ...
Saturday, 25 March 23
GLOBAL LNG-ASIA SPOT PRICES SLIP AS WEAK NORTHERN DEMAND REMAINS - REUTERS
Asian spot prices of liquefied natural gas (LNG) declined this week, falling to a 21-month low, as weak demand in the northeast Asia region continu ...
Wednesday, 22 March 23
OIL PRICE FALL SPECULATIVE, TO HIT $140 BY YEAR-END -ANDURAND: REUTERS
The recent fall in oil prices due to banking jitters is speculative and oil will hit $140 a barrel by the end of the year, hedge fund manager Pierr ...
|
|
|
Showing 116 to 120 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Neyveli Lignite Corporation Ltd, - India
- Marubeni Corporation - India
- Heidelberg Cement - Germany
- Makarim & Taira - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- Commonwealth Bank - Australia
- Sree Jayajothi Cements Limited - India
- Planning Commission, India
- Australian Coal Association
- Parry Sugars Refinery, India
- Kepco SPC Power Corporation, Philippines
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bharathi Cement Corporation - India
- Sojitz Corporation - Japan
- Indonesian Coal Mining Association
- Siam City Cement - Thailand
- Aditya Birla Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Ministry of Mines - Canada
- Ceylon Electricity Board - Sri Lanka
- Gujarat Mineral Development Corp Ltd - India
- Holcim Trading Pte Ltd - Singapore
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Indogreen Group - Indonesia
- SN Aboitiz Power Inc, Philippines
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Coalindo Energy - Indonesia
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Rio Tinto Coal - Australia
- The University of Queensland
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- Meenaskhi Energy Private Limited - India
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- Central Java Power - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Mercuria Energy - Indonesia
- GVK Power & Infra Limited - India
- Baramulti Group, Indonesia
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Interocean Group of Companies - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Metalloyd Limited - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement PLC, Thailand
- London Commodity Brokers - England
- Standard Chartered Bank - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Deloitte Consulting - India
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sical Logistics Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Uttam Galva Steels Limited - India
- Chettinad Cement Corporation Ltd - India
- Energy Development Corp, Philippines
- White Energy Company Limited
- Cigading International Bulk Terminal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Orica Mining Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
- Kalimantan Lumbung Energi - Indonesia
- Antam Resourcindo - Indonesia
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- ICICI Bank Limited - India
- Simpson Spence & Young - Indonesia
- Global Green Power PLC Corporation, Philippines
- Attock Cement Pakistan Limited
- Edison Trading Spa - Italy
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- Malabar Cements Ltd - India
- Independent Power Producers Association of India
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Renaissance Capital - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Straits Asia Resources Limited - Singapore
- Billiton Holdings Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- MS Steel International - UAE
- Dalmia Cement Bharat India
- Vizag Seaport Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- PTC India Limited - India
- Essar Steel Hazira Ltd - India
- Ministry of Finance - Indonesia
- Power Finance Corporation Ltd., India
- Xindia Steels Limited - India
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Mjunction Services Limited - India
- Global Coal Blending Company Limited - Australia
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Indika Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Coal and Oil Company - UAE
- Minerals Council of Australia
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Banpu Public Company Limited - Thailand
- Wood Mackenzie - Singapore
- LBH Netherlands Bv - Netherlands
- Tamil Nadu electricity Board
- Karaikal Port Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- India Bulls Power Limited - India
- Eastern Energy - Thailand
- IEA Clean Coal Centre - UK
- Kaltim Prima Coal - Indonesia
- Grasim Industreis Ltd - India
- Borneo Indobara - Indonesia
- Posco Energy - South Korea
- Electricity Generating Authority of Thailand
- Gujarat Sidhee Cement - India
- Therma Luzon, Inc, Philippines
- Wilmar Investment Holdings
- Riau Bara Harum - Indonesia
- Romanian Commodities Exchange
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Altura Mining Limited, Indonesia
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Lanco Infratech Ltd - India
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sakthi Sugars Limited - India
- IHS Mccloskey Coal Group - USA
- Larsen & Toubro Limited - India
- PowerSource Philippines DevCo
- Iligan Light & Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Bangladesh Power Developement Board
- Vedanta Resources Plc - India
- Economic Council, Georgia
- CIMB Investment Bank - Malaysia
- Leighton Contractors Pty Ltd - Australia
- Chamber of Mines of South Africa
- The Treasury - Australian Government
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- ASAPP Information Group - India
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Oldendorff Carriers - Singapore
- Bhoruka Overseas - Indonesia
- Binh Thuan Hamico - Vietnam
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- Salva Resources Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- Singapore Mercantile Exchange
- Eastern Coal Council - USA
- GMR Energy Limited - India
- Central Electricity Authority - India
- Petron Corporation, Philippines
- Thiess Contractors Indonesia
- Georgia Ports Authority, United States
- Mercator Lines Limited - India
- OPG Power Generation Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Formosa Plastics Group - Taiwan
- CNBM International Corporation - China
- Agrawal Coal Company - India
|
| |
| |
|
