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, 06 March 19
KOREA SOUTHERN POWER CO INVITES BIDS FOR 980,000 MT OF 4600 NCV COAL FOR THREE YEARS
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 320,000 MT of min 4,600 kcal/kg NCV low calo ...
Wednesday, 06 March 19
SHIPPING MARKET INSIGHT - INERMODAL
In a downward moving market, softer SnP activity is usually a given, as the gap between Sellers’ and Buyers’ ideas widens, especially w ...
Saturday, 02 March 19
A 60,500-TONNER WAS BOOKED DELIVERY SINGAPORE, VIA INDONESIA, REDELIVERY WEST COAST INDIA, AT $11,250 - BALTIC BRIEFING
Capesize
Vale’s ongoing absence from the Brazil spot market continued to have a negative impact on sentiment, with rates falling in all a ...
Thursday, 28 February 19
COAL'S PERFECT STORM HITS $70 BILLION AUSTRALIAN PROJECTS - BLOOMBERG
It’s been a tough few weeks for our coal industry.
First there was a court ruling blocking a new mine on climate change ground ...
Wednesday, 27 February 19
SHIPPING MARKET INSIGHT - INTERMODAL
With the IMO 2020 approaching, it becomes challenging for the market to accurately explore the run-up to the deadline given that marine fuel-oil of ...
|
|
|
Showing 1456 to 1460 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Romanian Commodities Exchange
- India Bulls Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- PNOC Exploration Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- International Coal Ventures Pvt Ltd - India
- Ministry of Mines - Canada
- Interocean Group of Companies - India
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Alfred C Toepfer International GmbH - Germany
- New Zealand Coal & Carbon
- CIMB Investment Bank - Malaysia
- TNB Fuel Sdn Bhd - Malaysia
- Therma Luzon, Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- The Treasury - Australian Government
- Heidelberg Cement - Germany
- Bhoruka Overseas - Indonesia
- Commonwealth Bank - Australia
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Pendopo Energi Batubara - Indonesia
- Standard Chartered Bank - UAE
- Aboitiz Power Corporation - Philippines
- Bangladesh Power Developement Board
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Grasim Industreis Ltd - India
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- TeaM Sual Corporation - Philippines
- Bhushan Steel Limited - India
- Australian Commodity Traders Exchange
- Directorate Of Revenue Intelligence - India
- Star Paper Mills Limited - India
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Malabar Cements Ltd - India
- Agrawal Coal Company - India
- ASAPP Information Group - India
- Ministry of Transport, Egypt
- Banpu Public Company Limited - Thailand
- Formosa Plastics Group - Taiwan
- Tata Chemicals Ltd - India
- Anglo American - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Global Coal Blending Company Limited - Australia
- Manunggal Multi Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- Power Finance Corporation Ltd., India
- Bulk Trading Sa - Switzerland
- Siam City Cement - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- SMC Global Power, Philippines
- Marubeni Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PTC India Limited - India
- Toyota Tsusho Corporation, Japan
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Rashtriya Ispat Nigam Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- San Jose City I Power Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Cement Manufacturers Association - India
- Parliament of New Zealand
- Chettinad Cement Corporation Ltd - India
- Savvy Resources Ltd - HongKong
- GAC Shipping (India) Pvt Ltd
- Port Waratah Coal Services - Australia
- Karbindo Abesyapradhi - Indoneisa
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- IEA Clean Coal Centre - UK
- VISA Power Limited - India
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kideco Jaya Agung - Indonesia
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Sarangani Energy Corporation, Philippines
- White Energy Company Limited
- Global Green Power PLC Corporation, Philippines
- Sojitz Corporation - Japan
- Indo Tambangraya Megah - Indonesia
- Sical Logistics Limited - India
- Mjunction Services Limited - India
- Africa Commodities Group - South Africa
- Economic Council, Georgia
- Electricity Authority, New Zealand
- Independent Power Producers Association of India
- Binh Thuan Hamico - Vietnam
- Riau Bara Harum - Indonesia
- Edison Trading Spa - Italy
- Orica Australia Pty. Ltd.
- Georgia Ports Authority, United States
- Latin American Coal - Colombia
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Indogreen Group - Indonesia
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Siam City Cement PLC, Thailand
- Lanco Infratech Ltd - India
- Ambuja Cements Ltd - India
- The University of Queensland
- Mercuria Energy - Indonesia
- Antam Resourcindo - Indonesia
- Planning Commission, India
- Xindia Steels Limited - India
- The State Trading Corporation of India Ltd
- Gujarat Sidhee Cement - India
- Thai Mozambique Logistica
- Central Java Power - Indonesia
- Essar Steel Hazira Ltd - India
- Merrill Lynch Commodities Europe
- OPG Power Generation Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Metalloyd Limited - United Kingdom
- Attock Cement Pakistan Limited
- Indika Energy - Indonesia
- Eastern Energy - Thailand
- Bukit Makmur.PT - Indonesia
- MS Steel International - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Makarim & Taira - Indonesia
- Simpson Spence & Young - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Kapuas Tunggal Persada - Indonesia
- Tamil Nadu electricity Board
- Kalimantan Lumbung Energi - Indonesia
- Indian Oil Corporation Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Billiton Holdings Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Kaltim Prima Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Bayan Resources Tbk. - Indonesia
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petron Corporation, Philippines
- Semirara Mining Corp, Philippines
- Indian Energy Exchange, India
- Mercator Lines Limited - India
- Kumho Petrochemical, South Korea
- CNBM International Corporation - China
- Vizag Seaport Private Limited - India
- Globalindo Alam Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Kepco SPC Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Neyveli Lignite Corporation Ltd, - India
- Altura Mining Limited, Indonesia
- Larsen & Toubro Limited - India
- Electricity Generating Authority of Thailand
- Carbofer General Trading SA - India
- Ministry of Finance - Indonesia
- Baramulti Group, Indonesia
- GVK Power & Infra Limited - India
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
|
| |
| |
|
