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, 03 May 16
HOW TO AVOID THE LATEST CARGO FRAUDS - BIMCO
BIMCO receives regular reports from members around the world about cargo fraud. This week alone we have had two reports of cargoes being fixed (or ...
Monday, 02 May 16
INDIA'S GANGAVARAM PORT SETS ALL INDIA RECORD FOR NON-COKING COAL DISCHARGE
COALspot.com: Gangavaram Port, the deepest and the most modern port in India, has created yet another historical milestone record by discharging 15 ...
Monday, 02 May 16
CS (I) 5000 GAR COAL INDEX CLOSES 0.11% HIGHER, 5700 GAR COAL RISES 0.07% W/W
COALspot.com: Average 5000 GAR coal index of Indonesian origin up 0.28 percent week over week to averaging $38.78 per ton on this past Friday, acco ...
Monday, 02 May 16
FREIGHT RATES ARE EXPECTED TO BE FLAT TO SOFT THIS WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued to rose this week.
The freight market was ...
Saturday, 30 April 16
40 YEARS OF HANDLING COAL AT THE BTW IN WILHELMSHAVEN UNDER THE RHENUS FLAG
Press Release: The first bulk carrier with coal on board docked at the Bulk Terminal Wilhelmshaven (BTW), which is operated by Rhenus Midgar ...
|
|
|
Showing 2451 to 2455 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Bangladesh Power Developement Board
- Coastal Gujarat Power Limited - India
- GMR Energy Limited - India
- Tamil Nadu electricity Board
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Kartika Selabumi Mining - Indonesia
- Mjunction Services Limited - India
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Sical Logistics Limited - India
- Kobexindo Tractors - Indoneisa
- Kumho Petrochemical, South Korea
- Samtan Co., Ltd - South Korea
- TNB Fuel Sdn Bhd - Malaysia
- International Coal Ventures Pvt Ltd - India
- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Manunggal Multi Energi - Indonesia
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- LBH Netherlands Bv - Netherlands
- Directorate General of MIneral and Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Baramulti Group, Indonesia
- Independent Power Producers Association of India
- Meralco Power Generation, Philippines
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Romanian Commodities Exchange
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parliament of New Zealand
- Kohat Cement Company Ltd. - Pakistan
- TeaM Sual Corporation - Philippines
- Bharathi Cement Corporation - India
- Sree Jayajothi Cements Limited - India
- Dalmia Cement Bharat India
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- Chamber of Mines of South Africa
- Australian Commodity Traders Exchange
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- Mercuria Energy - Indonesia
- Salva Resources Pvt Ltd - India
- IEA Clean Coal Centre - UK
- SN Aboitiz Power Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Tata Chemicals Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Bhushan Steel Limited - India
- Parry Sugars Refinery, India
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- Wood Mackenzie - Singapore
- Timah Investasi Mineral - Indoneisa
- Aboitiz Power Corporation - Philippines
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- Orica Australia Pty. Ltd.
- White Energy Company Limited
- The Treasury - Australian Government
- Eastern Coal Council - USA
- PetroVietnam Power Coal Import and Supply Company
- Videocon Industries ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- Port Waratah Coal Services - Australia
- Kideco Jaya Agung - Indonesia
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- IHS Mccloskey Coal Group - USA
- Bukit Baiduri Energy - Indonesia
- New Zealand Coal & Carbon
- Petron Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Java Power - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Standard Chartered Bank - UAE
- Simpson Spence & Young - Indonesia
- Price Waterhouse Coopers - Russia
- Vizag Seaport Private Limited - India
- Goldman Sachs - Singapore
- Bhatia International Limited - India
- Banpu Public Company Limited - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Indogreen Group - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Thai Mozambique Logistica
- Central Electricity Authority - India
- Holcim Trading Pte Ltd - Singapore
- Metalloyd Limited - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Energy Development Corp, Philippines
- Renaissance Capital - South Africa
- Madhucon Powers Ltd - India
- Minerals Council of Australia
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Planning Commission, India
- CNBM International Corporation - China
- ASAPP Information Group - India
- GVK Power & Infra Limited - India
- Malabar Cements Ltd - India
- Deloitte Consulting - India
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Uttam Galva Steels Limited - India
- Global Business Power Corporation, Philippines
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Global Coal Blending Company Limited - Australia
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- Makarim & Taira - Indonesia
- Heidelberg Cement - Germany
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Indika Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Energy Link Ltd, New Zealand
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Siam City Cement - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- London Commodity Brokers - England
- Iligan Light & Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- CIMB Investment Bank - Malaysia
- Sojitz Corporation - Japan
- Rashtriya Ispat Nigam Limited - India
- Electricity Authority, New Zealand
- Kaltim Prima Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Ambuja Cements Ltd - India
- Ministry of Transport, Egypt
- Karbindo Abesyapradhi - Indoneisa
- The State Trading Corporation of India Ltd
- Toyota Tsusho Corporation, Japan
- Oldendorff Carriers - Singapore
- Sakthi Sugars Limited - India
- Singapore Mercantile Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Oil Corporation Limited
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Indian Energy Exchange, India
- Global Green Power PLC Corporation, Philippines
- Georgia Ports Authority, United States
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Ceylon Electricity Board - Sri Lanka
- Bulk Trading Sa - Switzerland
- Carbofer General Trading SA - India
- Riau Bara Harum - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Aditya Birla Group - India
- Pendopo Energi Batubara - Indonesia
- Wilmar Investment Holdings
- Essar Steel Hazira Ltd - India
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- PNOC Exploration Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Semirara Mining Corp, Philippines
- Marubeni Corporation - India
- Economic Council, Georgia
- Cigading International Bulk Terminal - Indonesia
- Thiess Contractors Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Maharashtra Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- GN Power Mariveles Coal Plant, Philippines
- Antam Resourcindo - Indonesia
- Globalindo Alam Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
|
| |
| |
|
