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.
|
|
Friday, 14 December 18
KOSPO INVITED BIDS FOR 320,000 MT OF LOW CALORIFIC VALUE COAL
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 320,000 MT of min 4,300 kcal/kg NCV coal per ...
Friday, 14 December 18
KOSPO INVITES BIDS FOR 1,177,000 METRIC TONS OF COAL FOR Q1' 19 LOADING
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 701,000 MT of min 5,600 kcal/kg NCV coal and ...
Friday, 14 December 18
COAL IMPORT TO BE CHECKED BY RISING DOMESTIC PRODUCTION - FINANCIAL EXPRESS
The government’s effort to increase domestic coal production and power demand falling with the onset of the winters will check coal imports, ...
Thursday, 13 December 18
STRAITS AFFECTED BY TERRITORIAL DISPUTE BETWEEN SINGAPORE AND MALAYSIA - THE STANDARD CLUB
A recent territorial dispute has occurred between Singapore and Malaysia involving the Straits of Johor.
The Malaysian Attorney Gene ...
Wednesday, 12 December 18
SHIPPING MARKET INSIGHT - CHRISTOPHER WHITTY
China’s monthly iron ore imports dropped for the first time this year joined by declines in copper and soybeans as economic growth slows in t ...
|
|
|
Showing 1531 to 1535 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Wood Mackenzie - Singapore
- Samtan Co., Ltd - South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Transport, Egypt
- International Coal Ventures Pvt Ltd - India
- Grasim Industreis Ltd - India
- India Bulls Power Limited - India
- Petron Corporation, Philippines
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Vedanta Resources Plc - India
- Parliament of New Zealand
- Indo Tambangraya Megah - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- GAC Shipping (India) Pvt Ltd
- Minerals Council of Australia
- Metalloyd Limited - United Kingdom
- Economic Council, Georgia
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- McConnell Dowell - Australia
- Electricity Authority, New Zealand
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- SMG Consultants - Indonesia
- Sakthi Sugars Limited - India
- Australian Commodity Traders Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sarangani Energy Corporation, Philippines
- Romanian Commodities Exchange
- Altura Mining Limited, Indonesia
- Global Coal Blending Company Limited - Australia
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- CNBM International Corporation - China
- Wilmar Investment Holdings
- Ministry of Finance - Indonesia
- PTC India Limited - India
- PNOC Exploration Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Commonwealth Bank - Australia
- GN Power Mariveles Coal Plant, Philippines
- Marubeni Corporation - India
- Renaissance Capital - South Africa
- Global Business Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Riau Bara Harum - Indonesia
- Merrill Lynch Commodities Europe
- Maheswari Brothers Coal Limited - India
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement PLC, Thailand
- Eastern Coal Council - USA
- The University of Queensland
- Parry Sugars Refinery, India
- Xindia Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ind-Barath Power Infra Limited - India
- Electricity Generating Authority of Thailand
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Interocean Group of Companies - India
- Indonesian Coal Mining Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Oil Corporation Limited
- Miang Besar Coal Terminal - Indonesia
- Orica Mining Services - Indonesia
- Tata Chemicals Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- LBH Netherlands Bv - Netherlands
- The State Trading Corporation of India Ltd
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- Savvy Resources Ltd - HongKong
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Aboitiz Power Corporation - Philippines
- Eastern Energy - Thailand
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- Ambuja Cements Ltd - India
- Gujarat Sidhee Cement - India
- London Commodity Brokers - England
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Essar Steel Hazira Ltd - India
- Indogreen Group - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- Chamber of Mines of South Africa
- Orica Australia Pty. Ltd.
- Central Java Power - Indonesia
- Carbofer General Trading SA - India
- Petrochimia International Co. Ltd.- Taiwan
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- Attock Cement Pakistan Limited
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- GMR Energy Limited - India
- Aditya Birla Group - India
- Kohat Cement Company Ltd. - Pakistan
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Karbindo Abesyapradhi - Indoneisa
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- Formosa Plastics Group - Taiwan
- Posco Energy - South Korea
- Africa Commodities Group - South Africa
- Standard Chartered Bank - UAE
- OPG Power Generation Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Directorate Of Revenue Intelligence - India
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Binh Thuan Hamico - Vietnam
- Mintek Dendrill Indonesia
- Energy Link Ltd, New Zealand
- Mjunction Services Limited - India
- Mercator Lines Limited - India
- Tamil Nadu electricity Board
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- PowerSource Philippines DevCo
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Straits Asia Resources Limited - Singapore
- IHS Mccloskey Coal Group - USA
- Australian Coal Association
- Sojitz Corporation - Japan
- Cigading International Bulk Terminal - Indonesia
- Makarim & Taira - Indonesia
- Cement Manufacturers Association - India
- ICICI Bank Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kobexindo Tractors - Indoneisa
- IEA Clean Coal Centre - UK
- GVK Power & Infra Limited - India
- Coal and Oil Company - UAE
- Siam City Cement - Thailand
- The Treasury - Australian Government
- Directorate General of MIneral and Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Singapore Mercantile Exchange
- Sical Logistics Limited - India
- Thiess Contractors Indonesia
- Anglo American - United Kingdom
- Bayan Resources Tbk. - Indonesia
- SN Aboitiz Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
|
| |
| |
|
