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, 24 October 18
MARKET INSIGHT - NASSOS SOULAKIS
Looking at 2018 SnP activity, it is evident that Greek, Chinese and North European (German and Norwegian) owners are the top buying nationalities, ...
Wednesday, 24 October 18
CHINESE POWER PLANT STOCKPILES AT HIGHEST LEVEL SINCE 2015 - JEFFREY LANDSBERG
Chinese power plant coal stockpiles have climbed to approximately 83.3 million tons as of the middle of this month, said Jeffrey Landsberg in his e ...
Tuesday, 23 October 18
WILL THE U.S. COAL DECLINE CONTINUE? - FORBES
What’s Trump’s new coal proposal?
Adding to its controversial plan to leverage federal authority to keep retiring baselo ...
Monday, 22 October 18
CONTINUED HIGH LNG PRICES; TRADE WAR IMPACT LIMITED - FITCH RATINGS
Fitch Ratings expects sustained high spot liquefied natural gas (LNG) and contract prices over the next two quarters on limited investment in LNG e ...
Monday, 22 October 18
WINTER OIL MARKET OUTLOOK - OPEC
The oil market in the winter season is generally characterized by demand for diesel, particularly in the northern hemisphere, leaving product marke ...
|
|
|
Showing 1581 to 1585 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- PetroVietnam Power Coal Import and Supply Company
- Timah Investasi Mineral - Indoneisa
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- Eastern Coal Council - USA
- India Bulls Power Limited - India
- Chamber of Mines of South Africa
- Thai Mozambique Logistica
- Economic Council, Georgia
- Bhatia International Limited - India
- Directorate Of Revenue Intelligence - India
- Indian Energy Exchange, India
- McConnell Dowell - Australia
- Sical Logistics Limited - India
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- Edison Trading Spa - Italy
- Globalindo Alam Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indogreen Group - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Barasentosa Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- Uttam Galva Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Port Waratah Coal Services - Australia
- Thiess Contractors Indonesia
- Mintek Dendrill Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Sidhee Cement - India
- Karaikal Port Pvt Ltd - India
- Singapore Mercantile Exchange
- Binh Thuan Hamico - Vietnam
- Riau Bara Harum - Indonesia
- Therma Luzon, Inc, Philippines
- London Commodity Brokers - England
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Krishnapatnam Port Company Ltd. - India
- Orica Australia Pty. Ltd.
- IEA Clean Coal Centre - UK
- Parliament of New Zealand
- Vedanta Resources Plc - India
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Mercator Lines Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Commonwealth Bank - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Sakthi Sugars Limited - India
- PNOC Exploration Corporation - Philippines
- Energy Link Ltd, New Zealand
- Star Paper Mills Limited - India
- Essar Steel Hazira Ltd - India
- New Zealand Coal & Carbon
- Siam City Cement PLC, Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Electricity Authority, New Zealand
- Cigading International Bulk Terminal - Indonesia
- Makarim & Taira - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Agrawal Coal Company - India
- Kohat Cement Company Ltd. - Pakistan
- Anglo American - United Kingdom
- Eastern Energy - Thailand
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Indian Oil Corporation Limited
- Standard Chartered Bank - UAE
- OPG Power Generation Pvt Ltd - India
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- TeaM Sual Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Kaltim Prima Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Coalindo Energy - Indonesia
- Baramulti Group, Indonesia
- Ministry of Finance - Indonesia
- Straits Asia Resources Limited - Singapore
- Bukit Makmur.PT - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- Power Finance Corporation Ltd., India
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- VISA Power Limited - India
- Antam Resourcindo - Indonesia
- Medco Energi Mining Internasional
- GMR Energy Limited - India
- Central Java Power - Indonesia
- ASAPP Information Group - India
- Metalloyd Limited - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- The University of Queensland
- Pendopo Energi Batubara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- Attock Cement Pakistan Limited
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Mjunction Services Limited - India
- Bukit Baiduri Energy - Indonesia
- MS Steel International - UAE
- Xindia Steels Limited - India
- Marubeni Corporation - India
- Kepco SPC Power Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Petron Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Kumho Petrochemical, South Korea
- Altura Mining Limited, Indonesia
- Price Waterhouse Coopers - Russia
- Neyveli Lignite Corporation Ltd, - India
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Africa Commodities Group - South Africa
- Mercuria Energy - Indonesia
- Samtan Co., Ltd - South Korea
- White Energy Company Limited
- Jaiprakash Power Ventures ltd
- PowerSource Philippines DevCo
- Tamil Nadu electricity Board
- Independent Power Producers Association of India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ICICI Bank Limited - India
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- Madhucon Powers Ltd - India
- Grasim Industreis Ltd - India
- Salva Resources Pvt Ltd - India
- Bangladesh Power Developement Board
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Central Electricity Authority - India
- GVK Power & Infra Limited - India
- Wood Mackenzie - Singapore
- Meenaskhi Energy Private Limited - India
- IHS Mccloskey Coal Group - USA
- Videocon Industries ltd - India
- Ambuja Cements Ltd - India
- Carbofer General Trading SA - India
- Sindya Power Generating Company Private Ltd
- Bhoruka Overseas - Indonesia
- Kartika Selabumi Mining - Indonesia
- Indonesian Coal Mining Association
- Maharashtra Electricity Regulatory Commission - India
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Chettinad Cement Corporation Ltd - India
- Energy Development Corp, Philippines
- Parry Sugars Refinery, India
- SN Aboitiz Power Inc, Philippines
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Trasteel International SA, Italy
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Lanco Infratech Ltd - India
- Larsen & Toubro Limited - India
- Australian Coal Association
- Savvy Resources Ltd - HongKong
- Billiton Holdings Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Oldendorff Carriers - Singapore
- Renaissance Capital - South Africa
|
| |
| |
|
