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, 19 December 18
GLOBAL COAL DEMAND SET TO REMAIN STABLE THROUGH 2023, DESPITE HEADWINDS - IEA
While global coal demand looks set to rise for the second year in a row in 2018, it is forecast to remain stable over the next five years, as decli ...
Wednesday, 19 December 18
GLOBAL SHIPPING SCOUTS FOR FUTURE GROWTH - PETER SAND, BIMCO
Where do we go to find economic growth that spurs shipping demand in the next five years? According to the International Monetary Fund (IMF), we sh ...
Wednesday, 19 December 18
SHIPPING MARKET INSIGHT - INTERMODAL
As another year is coming to an end, it is interesting to look at the main shipping markets and how these performed compared to 2017.
&nb ...
Tuesday, 18 December 18
COAL DEMAND WILL REMAIN STEADY THROUGH 2023, INTERNATIONAL ENERGY AGENCY SAYS - TOM DICHRISTOPHER, CNBC
Coal consumption is on the rise but will remain roughly stable over the next five years, the International Energy Agency forecasts.
...
Tuesday, 18 December 18
DRY BULK: IN ABSOLUTE TERMS, ALL MAIN SIZE SEGMENTS SAW THEIR ACTUAL VOLATILITY FIGURES DECREASE - ALLIED
Since the beginning of 2016, when the dry bulk market reached its absolute bottom, freight rates have been ever since on an upward trajectory. Taki ...
|
|
|
Showing 1521 to 1525 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- IHS Mccloskey Coal Group - USA
- Asmin Koalindo Tuhup - Indonesia
- Miang Besar Coal Terminal - Indonesia
- London Commodity Brokers - England
- Renaissance Capital - South Africa
- Bulk Trading Sa - Switzerland
- Riau Bara Harum - Indonesia
- SMG Consultants - Indonesia
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Makarim & Taira - Indonesia
- Tata Chemicals Ltd - India
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Metalloyd Limited - United Kingdom
- Rio Tinto Coal - Australia
- Singapore Mercantile Exchange
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- Sree Jayajothi Cements Limited - India
- Ministry of Transport, Egypt
- Ministry of Finance - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Kepco SPC Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Planning Commission, India
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- Altura Mining Limited, Indonesia
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Bangladesh Power Developement Board
- VISA Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Australian Commodity Traders Exchange
- Jaiprakash Power Ventures ltd
- Electricity Generating Authority of Thailand
- Kideco Jaya Agung - Indonesia
- Marubeni Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- Holcim Trading Pte Ltd - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- AsiaOL BioFuels Corp., Philippines
- IEA Clean Coal Centre - UK
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- Alfred C Toepfer International GmbH - Germany
- Toyota Tsusho Corporation, Japan
- Vijayanagar Sugar Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- Independent Power Producers Association of India
- Commonwealth Bank - Australia
- Star Paper Mills Limited - India
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Borneo Indobara - Indonesia
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Semirara Mining Corp, Philippines
- Bharathi Cement Corporation - India
- The University of Queensland
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Grasim Industreis Ltd - India
- Central Java Power - Indonesia
- Minerals Council of Australia
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Indo Tambangraya Megah - Indonesia
- Indian Energy Exchange, India
- The State Trading Corporation of India Ltd
- Cement Manufacturers Association - India
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Globalindo Alam Lestari - Indonesia
- CNBM International Corporation - China
- Kaltim Prima Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- SMC Global Power, Philippines
- GMR Energy Limited - India
- Coalindo Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- PowerSource Philippines DevCo
- Ind-Barath Power Infra Limited - India
- Oldendorff Carriers - Singapore
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- White Energy Company Limited
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- Electricity Authority, New Zealand
- Energy Link Ltd, New Zealand
- LBH Netherlands Bv - Netherlands
- Ministry of Mines - Canada
- Lanco Infratech Ltd - India
- Timah Investasi Mineral - Indoneisa
- Australian Coal Association
- Indonesian Coal Mining Association
- SN Aboitiz Power Inc, Philippines
- Siam City Cement - Thailand
- Deloitte Consulting - India
- Karaikal Port Pvt Ltd - India
- Meralco Power Generation, Philippines
- McConnell Dowell - Australia
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- International Coal Ventures Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Sakthi Sugars Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- OPG Power Generation Pvt Ltd - India
- Mjunction Services Limited - India
- Medco Energi Mining Internasional
- Billiton Holdings Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- South Luzon Thermal Energy Corporation
- Price Waterhouse Coopers - Russia
- Anglo American - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Tamil Nadu electricity Board
- Krishnapatnam Port Company Ltd. - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karbindo Abesyapradhi - Indoneisa
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Orica Australia Pty. Ltd.
- Power Finance Corporation Ltd., India
- CIMB Investment Bank - Malaysia
- Iligan Light & Power Inc, Philippines
- Standard Chartered Bank - UAE
- Orica Mining Services - Indonesia
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement PLC, Thailand
- GN Power Mariveles Coal Plant, Philippines
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- Simpson Spence & Young - Indonesia
- Directorate Of Revenue Intelligence - India
- India Bulls Power Limited - India
- Therma Luzon, Inc, Philippines
- Vedanta Resources Plc - India
- Rashtriya Ispat Nigam Limited - India
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- Essar Steel Hazira Ltd - India
- Bukit Baiduri Energy - Indonesia
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Central Electricity Authority - India
- Pendopo Energi Batubara - Indonesia
- Agrawal Coal Company - India
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- PTC India Limited - India
- Mintek Dendrill Indonesia
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Videocon Industries ltd - India
- Port Waratah Coal Services - Australia
- Samtan Co., Ltd - South Korea
- Kartika Selabumi Mining - Indonesia
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- Eastern Coal Council - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
|
| |
| |
|
