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.
|
|
Tuesday, 18 December 18
COAL OUTLOOK BULLISH DESPITE WEAK CHINESE IMPORT DATA - HEREN, ICIS
Coal prices may appreciate over the remainder of 2018 even despite recent data showing falling imports from the world’s largest producer and ...
Tuesday, 18 December 18
TOBA BARA ACQUIRES SHARES OF PT BATU HITAM PERKASA
PT Toba Bara Sejahtra Tbk, through its subsidiary PT Toba Bara Energi (“TBE”), has acquired shares ...
Monday, 17 December 18
SUPRAMAX THERE WAS STRONGER DEMAND FROM SOUTHEAST ASIA, WITH MORE COAL BEING SHIPPED - BALTIC BRIEFING
Capesize
A positive end to last week after a somewhat uncertain start as some gains made were eroded. Rates recovered later for West Australia/ ...
Monday, 17 December 18
SOUTH KOREA STATE-OWNED UTILITY KOREA EAST-WEST POWER CO. LTD ISSUED A TENDER FOR MAX 3.220 MILLION TONS OF 4200 TO 5900 NAR COAL
COALspot.com: South Korea state-owned utility Korea East-West Power Co. Ltd (EWP) issued a tender for max 3,220,000 Metric Tons of coal to be loade ...
Saturday, 15 December 18
COMING CHANGES IN MARINE FUEL SULFUR LIMITS WILL AFFECT GLOBAL OIL MARKETS - EIA
International regulations limiting sulfur in fuels for ocean-going vessels, set to take effect in January 2020, have implications for vessel operat ...
|
|
|
Showing 1526 to 1530 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Star Paper Mills Limited - India
- Formosa Plastics Group - Taiwan
- Orica Australia Pty. Ltd.
- Holcim Trading Pte Ltd - Singapore
- Heidelberg Cement - Germany
- Indian Oil Corporation Limited
- Sarangani Energy Corporation, Philippines
- IEA Clean Coal Centre - UK
- Pipit Mutiara Jaya. PT, Indonesia
- Merrill Lynch Commodities Europe
- Sinarmas Energy and Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meralco Power Generation, Philippines
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- Rio Tinto Coal - Australia
- GVK Power & Infra Limited - India
- Indogreen Group - Indonesia
- Petron Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- South Luzon Thermal Energy Corporation
- Videocon Industries ltd - India
- Singapore Mercantile Exchange
- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Lanco Infratech Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Makarim & Taira - Indonesia
- CIMB Investment Bank - Malaysia
- Semirara Mining Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Mercator Lines Limited - India
- LBH Netherlands Bv - Netherlands
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Pendopo Energi Batubara - Indonesia
- Kobexindo Tractors - Indoneisa
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Coalindo Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Grasim Industreis Ltd - India
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Tamil Nadu electricity Board
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Intertek Mineral Services - Indonesia
- Thiess Contractors Indonesia
- San Jose City I Power Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- International Coal Ventures Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- SMG Consultants - Indonesia
- The University of Queensland
- Directorate General of MIneral and Coal - Indonesia
- Cement Manufacturers Association - India
- Sree Jayajothi Cements Limited - India
- Siam City Cement PLC, Thailand
- Kohat Cement Company Ltd. - Pakistan
- Wood Mackenzie - Singapore
- Antam Resourcindo - Indonesia
- Edison Trading Spa - Italy
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- VISA Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- ICICI Bank Limited - India
- Sakthi Sugars Limited - India
- Samtan Co., Ltd - South Korea
- Gujarat Mineral Development Corp Ltd - India
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- India Bulls Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Wilmar Investment Holdings
- Minerals Council of Australia
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
- Directorate Of Revenue Intelligence - India
- Parliament of New Zealand
- Kartika Selabumi Mining - Indonesia
- Romanian Commodities Exchange
- GN Power Mariveles Coal Plant, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Sical Logistics Limited - India
- MS Steel International - UAE
- Mjunction Services Limited - India
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Orica Mining Services - Indonesia
- Chamber of Mines of South Africa
- Medco Energi Mining Internasional
- McConnell Dowell - Australia
- Kepco SPC Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Marubeni Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Transport, Egypt
- Neyveli Lignite Corporation Ltd, - India
- London Commodity Brokers - England
- Indian Energy Exchange, India
- Ambuja Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Vizag Seaport Private Limited - India
- Port Waratah Coal Services - Australia
- Mintek Dendrill Indonesia
- Salva Resources Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- PowerSource Philippines DevCo
- White Energy Company Limited
- Barasentosa Lestari - Indonesia
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Indonesian Coal Mining Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Borneo Indobara - Indonesia
- Interocean Group of Companies - India
- Vedanta Resources Plc - India
- Maharashtra Electricity Regulatory Commission - India
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Independent Power Producers Association of India
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Electricity Authority, New Zealand
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Energy Link Ltd, New Zealand
- Australian Coal Association
- Uttam Galva Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- Australian Commodity Traders Exchange
- Gujarat Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- Electricity Generating Authority of Thailand
- Economic Council, Georgia
- Chettinad Cement Corporation Ltd - India
- Agrawal Coal Company - India
- Petrochimia International Co. Ltd.- Taiwan
- Sindya Power Generating Company Private Ltd
- Central Java Power - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Binh Thuan Hamico - Vietnam
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- Kumho Petrochemical, South Korea
- Larsen & Toubro Limited - India
- Straits Asia Resources Limited - Singapore
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- Indika Energy - Indonesia
- Baramulti Group, Indonesia
- Georgia Ports Authority, United States
- Coastal Gujarat Power Limited - India
- Renaissance Capital - South Africa
- Indo Tambangraya Megah - Indonesia
- Simpson Spence & Young - Indonesia
- Ind-Barath Power Infra Limited - India
- Global Coal Blending Company Limited - Australia
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- Eastern Energy - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kideco Jaya Agung - Indonesia
- Bukit Makmur.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- New Zealand Coal & Carbon
- Bhatia International Limited - India
- Leighton Contractors Pty Ltd - Australia
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
|
| |
| |
|
