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, 13 June 18
SHIPPING MARKET INSIGHT - SOPHIE COTZIAS
2018 marks quite a few milestones for Greek Shipping. No need to detail again the greatness of Greek Shipping or the singular position that Greek s ...
Monday, 11 June 18
AUSTRALIAN COAL PRICES HIT 6-YEAR HIGH AS ASIA DEMAND SPIKES - REUTERS
Australian thermal coal prices have risen to their highest level since 2012 as hot weather across North Asia spurs buying ahead of the peak summer ...
Monday, 11 June 18
ANALYSING A NEW AGE OF AUTONOMOUS VESSELS - IMO
The International Maritime Organization answers the questions of Government Europa on how the next generation of autonomous vessels can be regulate ...
Friday, 08 June 18
AUSTRALIAN THERMAL COAL PRICES SURGE AS ASIA DEMAND HEATS UP - REUTERS
Australian thermal coal prices have hit their highest level since late 2016 as the market heats up on strong demand across North Asia and China in ...
Wednesday, 06 June 18
SHIPPING MARKET INSIGHT - KATERINA RESTIS
As observed last month the price of oil hit its highest level since November 2014 reaching $80 per barrel. Global oil demand growth for 2018 was sl ...
|
|
|
Showing 1701 to 1705 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Bukit Makmur.PT - Indonesia
- Singapore Mercantile Exchange
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Grasim Industreis Ltd - India
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Formosa Plastics Group - Taiwan
- PTC India Limited - India
- Sakthi Sugars Limited - India
- Sojitz Corporation - Japan
- Central Electricity Authority - India
- Thai Mozambique Logistica
- Parliament of New Zealand
- Standard Chartered Bank - UAE
- Semirara Mining Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Makarim & Taira - Indonesia
- Independent Power Producers Association of India
- Siam City Cement PLC, Thailand
- Jaiprakash Power Ventures ltd
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Directorate General of MIneral and Coal - Indonesia
- Star Paper Mills Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Kobexindo Tractors - Indoneisa
- Altura Mining Limited, Indonesia
- Kaltim Prima Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
- Central Java Power - Indonesia
- Kartika Selabumi Mining - Indonesia
- Commonwealth Bank - Australia
- Salva Resources Pvt Ltd - India
- Goldman Sachs - Singapore
- Maheswari Brothers Coal Limited - India
- Indo Tambangraya Megah - Indonesia
- Renaissance Capital - South Africa
- GMR Energy Limited - India
- Kapuas Tunggal Persada - Indonesia
- McConnell Dowell - Australia
- Indonesian Coal Mining Association
- Global Coal Blending Company Limited - Australia
- Kepco SPC Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- GVK Power & Infra Limited - India
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Simpson Spence & Young - Indonesia
- Power Finance Corporation Ltd., India
- Global Green Power PLC Corporation, Philippines
- Tamil Nadu electricity Board
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Aditya Birla Group - India
- Intertek Mineral Services - Indonesia
- Ministry of Finance - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Wood Mackenzie - Singapore
- Timah Investasi Mineral - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Mercator Lines Limited - India
- Cement Manufacturers Association - India
- Minerals Council of Australia
- India Bulls Power Limited - India
- SMG Consultants - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Barasentosa Lestari - Indonesia
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- Parry Sugars Refinery, India
- Sindya Power Generating Company Private Ltd
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Siam City Cement - Thailand
- The University of Queensland
- Ministry of Mines - Canada
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- Electricity Authority, New Zealand
- Dalmia Cement Bharat India
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- CIMB Investment Bank - Malaysia
- Kideco Jaya Agung - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Port Waratah Coal Services - Australia
- Asmin Koalindo Tuhup - Indonesia
- Essar Steel Hazira Ltd - India
- CNBM International Corporation - China
- Orica Australia Pty. Ltd.
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- White Energy Company Limited
- Bukit Baiduri Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- Wilmar Investment Holdings
- Straits Asia Resources Limited - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Larsen & Toubro Limited - India
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- Baramulti Group, Indonesia
- MS Steel International - UAE
- Energy Development Corp, Philippines
- Bhushan Steel Limited - India
- Indian Energy Exchange, India
- Gujarat Sidhee Cement - India
- Karbindo Abesyapradhi - Indoneisa
- Lanco Infratech Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Petron Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Karaikal Port Pvt Ltd - India
- New Zealand Coal & Carbon
- Vedanta Resources Plc - India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Sree Jayajothi Cements Limited - India
- Attock Cement Pakistan Limited
- Sical Logistics Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- Thiess Contractors Indonesia
- Meralco Power Generation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Medco Energi Mining Internasional
- Leighton Contractors Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- ICICI Bank Limited - India
- Riau Bara Harum - Indonesia
- Bulk Trading Sa - Switzerland
- The Treasury - Australian Government
- GAC Shipping (India) Pvt Ltd
- Alfred C Toepfer International GmbH - Germany
- Borneo Indobara - Indonesia
- Mjunction Services Limited - India
- Madhucon Powers Ltd - India
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Eastern Coal Council - USA
- Antam Resourcindo - Indonesia
- Merrill Lynch Commodities Europe
- Samtan Co., Ltd - South Korea
- Banpu Public Company Limited - Thailand
- San Jose City I Power Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ind-Barath Power Infra Limited - India
- TeaM Sual Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Romanian Commodities Exchange
- South Luzon Thermal Energy Corporation
- Maharashtra Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- European Bulk Services B.V. - Netherlands
- Trasteel International SA, Italy
- Coal and Oil Company - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
|
| |
| |
|
