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.
|
|
Thursday, 07 April 16
PANAMAX RATES ARE FIRMING IN BOTH HEMISHEPHERES - FEARNLEYS
Capesize
With a great volume our of west Australia, rates were finally moving to upper 3's. and stabilizing towards the middle of the week in ...
Thursday, 07 April 16
BIMCO AND GIIGNL PUBLISH A GROUNDBREAKING VOYAGE CHARTER PARTY FOR LNG TRADE
BIMCO and the International Group of Liquefied Natural Gas Importers (GIIGNL) have today jointly issued the first definitive voyage charter party & ...
Wednesday, 06 April 16
HOW LONG SHIPPING CRISIS WILL BE; WHEN SHOULD OWNERS EXPECT THE BULK CARRIERS TO BECOME PROFITABLE? - INTERMODAL
It is the consensus that dry bulk shipping has been in a crisis for quite some time now. Bulk carrier values are at historical low levels, therefor ...
Tuesday, 05 April 16
DRY BULK REVISITS 1980S LOWS AND FACES UNCERTAIN LONGER TERM OUTLOOK - MSI | HELLENIC SHIPPING NEWS
With the market near bottom, attention is turning to the length of the downturn, the effect on asset values and the impact of broader demand side c ...
Monday, 04 April 16
THE LOADING, AND SUBSEQUENT DISCHARGE, OF UNSAFE NICKEL ORE - ALL TIME TO 'COUNT' - THE STANDARD CLUB
KNOWLEDGE TO ELEVATE
In a recent, published, London arbitration award the English tribunal has held that all time lost as a result of loading, ...
|
|
|
Showing 2491 to 2495 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Neyveli Lignite Corporation Ltd, - India
- Leighton Contractors Pty Ltd - Australia
- Coal and Oil Company - UAE
- Essar Steel Hazira Ltd - India
- Singapore Mercantile Exchange
- Wood Mackenzie - Singapore
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Indonesian Coal Mining Association
- White Energy Company Limited
- Kohat Cement Company Ltd. - Pakistan
- Electricity Authority, New Zealand
- Vizag Seaport Private Limited - India
- Oldendorff Carriers - Singapore
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- Meenaskhi Energy Private Limited - India
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Petron Corporation, Philippines
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate Of Revenue Intelligence - India
- IEA Clean Coal Centre - UK
- Karbindo Abesyapradhi - Indoneisa
- GMR Energy Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Medco Energi Mining Internasional
- LBH Netherlands Bv - Netherlands
- Grasim Industreis Ltd - India
- The State Trading Corporation of India Ltd
- Ind-Barath Power Infra Limited - India
- Bayan Resources Tbk. - Indonesia
- GVK Power & Infra Limited - India
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- Standard Chartered Bank - UAE
- Thiess Contractors Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rio Tinto Coal - Australia
- Globalindo Alam Lestari - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Xindia Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Merrill Lynch Commodities Europe
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- Maheswari Brothers Coal Limited - India
- Indika Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- Anglo American - United Kingdom
- Global Business Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercator Lines Limited - India
- Central Electricity Authority - India
- Semirara Mining and Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Goldman Sachs - Singapore
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Barasentosa Lestari - Indonesia
- Heidelberg Cement - Germany
- PowerSource Philippines DevCo
- Cigading International Bulk Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Australian Coal Association
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Mintek Dendrill Indonesia
- Meralco Power Generation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- San Jose City I Power Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Lanco Infratech Ltd - India
- Mercuria Energy - Indonesia
- New Zealand Coal & Carbon
- Vijayanagar Sugar Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- TNB Fuel Sdn Bhd - Malaysia
- Independent Power Producers Association of India
- Parry Sugars Refinery, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- India Bulls Power Limited - India
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- London Commodity Brokers - England
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sakthi Sugars Limited - India
- Marubeni Corporation - India
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Semirara Mining Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- CIMB Investment Bank - Malaysia
- Wilmar Investment Holdings
- Kideco Jaya Agung - Indonesia
- Planning Commission, India
- Videocon Industries ltd - India
- Minerals Council of Australia
- Price Waterhouse Coopers - Russia
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Ministry of Transport, Egypt
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- Parliament of New Zealand
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- Kepco SPC Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kapuas Tunggal Persada - Indonesia
- Central Java Power - Indonesia
- The University of Queensland
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- Electricity Generating Authority of Thailand
- PTC India Limited - India
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Jaiprakash Power Ventures ltd
- Metalloyd Limited - United Kingdom
- Vedanta Resources Plc - India
- Orica Australia Pty. Ltd.
- VISA Power Limited - India
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Bharathi Cement Corporation - India
- Dalmia Cement Bharat India
- Ministry of Finance - Indonesia
- The Treasury - Australian Government
- Simpson Spence & Young - Indonesia
- Renaissance Capital - South Africa
- Holcim Trading Pte Ltd - Singapore
- CNBM International Corporation - China
- Coastal Gujarat Power Limited - India
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Cement Manufacturers Association - India
- Pendopo Energi Batubara - Indonesia
- Borneo Indobara - Indonesia
- TeaM Sual Corporation - Philippines
- Ambuja Cements Ltd - India
- Chamber of Mines of South Africa
- Samtan Co., Ltd - South Korea
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Miang Besar Coal Terminal - Indonesia
- Economic Council, Georgia
- Krishnapatnam Port Company Ltd. - India
- Bangladesh Power Developement Board
- Formosa Plastics Group - Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- Georgia Ports Authority, United States
- Iligan Light & Power Inc, Philippines
- Sical Logistics Limited - India
- Tamil Nadu electricity Board
- Banpu Public Company Limited - Thailand
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Posco Energy - South Korea
|
| |
| |
|
