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, 10 November 17
U.S. COAL OUTPUT FOR THE FIRST 10 MONTHS OF 2017 IS ESTIMATED AT AROUND 656 MMST; UP10% YOY - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 15 million short tons ...
Wednesday, 08 November 17
COAL MARKETS WERE MIXED; COKING COAL EKING OUT SOME GAINS; THERMAL COAL STRUGGLING - DANIEL HYNES
Coal markets were mixed, with coking coal eking out some gains, while thermal coal struggled amid the falling oil prices, ANZ Strategist said in a ...
Wednesday, 08 November 17
WEEKLY SHIPPING MARKET INSIGHT
If you are a dry bulk owner today you are definitely feeling the pressure of the past couple of years off and given the admittedly unexpected growt ...
Wednesday, 08 November 17
NEW QUAY OPENED AT THE INDUSTRIAL PORT IN BREMEN,GERMAN
Press Release: After a building period lasting three-and-a-half years, the port logistics firm Weserport, the “bremenports” comp ...
Tuesday, 07 November 17
ING JOINS FORCES ON BLOCKCHAIN-BASED PLATFORM FOR ENERGY COMMODITIES SECTOR
Blockchain technology. It’s often been described as the most important invention in computing in a generation.
So it should come as no s ...
|
|
|
Showing 1886 to 1890 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Karbindo Abesyapradhi - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Larsen & Toubro Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- India Bulls Power Limited - India
- New Zealand Coal & Carbon
- Posco Energy - South Korea
- Interocean Group of Companies - India
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Indian Oil Corporation Limited
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- VISA Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- ASAPP Information Group - India
- The University of Queensland
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Semirara Mining Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Bhoruka Overseas - Indonesia
- White Energy Company Limited
- Makarim & Taira - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Bhatia International Limited - India
- Singapore Mercantile Exchange
- Lanco Infratech Ltd - India
- PNOC Exploration Corporation - Philippines
- Star Paper Mills Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Energy Link Ltd, New Zealand
- Indika Energy - Indonesia
- Central Java Power - Indonesia
- Bhushan Steel Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Deloitte Consulting - India
- Parliament of New Zealand
- Thiess Contractors Indonesia
- Videocon Industries ltd - India
- Minerals Council of Australia
- Therma Luzon, Inc, Philippines
- Medco Energi Mining Internasional
- Merrill Lynch Commodities Europe
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bangladesh Power Developement Board
- IHS Mccloskey Coal Group - USA
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Sindya Power Generating Company Private Ltd
- Aboitiz Power Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Karaikal Port Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Orica Mining Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Electricity Authority, New Zealand
- Indo Tambangraya Megah - Indonesia
- Bayan Resources Tbk. - Indonesia
- Directorate Of Revenue Intelligence - India
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- OPG Power Generation Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- Indogreen Group - Indonesia
- Trasteel International SA, Italy
- MS Steel International - UAE
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Intertek Mineral Services - Indonesia
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Uttam Galva Steels Limited - India
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- McConnell Dowell - Australia
- Ministry of Mines - Canada
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Essar Steel Hazira Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Georgia Ports Authority, United States
- Banpu Public Company Limited - Thailand
- Romanian Commodities Exchange
- European Bulk Services B.V. - Netherlands
- GAC Shipping (India) Pvt Ltd
- Central Electricity Authority - India
- Carbofer General Trading SA - India
- Vizag Seaport Private Limited - India
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- The State Trading Corporation of India Ltd
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Indonesian Coal Mining Association
- Marubeni Corporation - India
- Formosa Plastics Group - Taiwan
- Kumho Petrochemical, South Korea
- PowerSource Philippines DevCo
- Global Green Power PLC Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- CNBM International Corporation - China
- IEA Clean Coal Centre - UK
- Riau Bara Harum - Indonesia
- Jaiprakash Power Ventures ltd
- Mercuria Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Thai Mozambique Logistica
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- Bulk Trading Sa - Switzerland
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Economic Council, Georgia
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Siam City Cement - Thailand
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Parry Sugars Refinery, India
- Simpson Spence & Young - Indonesia
- Orica Australia Pty. Ltd.
- Pendopo Energi Batubara - Indonesia
- Antam Resourcindo - Indonesia
- GMR Energy Limited - India
- Ind-Barath Power Infra Limited - India
- Planning Commission, India
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Attock Cement Pakistan Limited
- Dalmia Cement Bharat India
- Pipit Mutiara Jaya. PT, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coalindo Energy - Indonesia
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Barasentosa Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- Tamil Nadu electricity Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Coal Association
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- Africa Commodities Group - South Africa
- Samtan Co., Ltd - South Korea
- Wood Mackenzie - Singapore
- Ceylon Electricity Board - Sri Lanka
- Energy Development Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- Kohat Cement Company Ltd. - Pakistan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Metalloyd Limited - United Kingdom
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Gujarat Sidhee Cement - India
- Heidelberg Cement - Germany
- Mintek Dendrill Indonesia
- Tata Chemicals Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- Mjunction Services Limited - India
- Sojitz Corporation - Japan
|
| |
| |
|
