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, 31 March 16
CAPE: ANOTHER UNEVENTFUL WEEK WITH FIXTURES CONCLUDED AT LAST DONE LEVELS - FEARNLEYS
Cape
Another uneventful week with fixtures concluded at last done levels, CS levels remain around the USD 3 mark, whilst C3 is still just short o ...
Wednesday, 30 March 16
MINISTRY OF ENERGY AND MINERAL RESOURCES OF INDONESIA TO REVISE METHODOLOGY TO DETERMINE THE SELLING PRICE OF COAL TO MINE-MOUTH POWER PLANTS
COALspot.com: Ministry of Energy and Mineral Resources (ESDM) of Indonesia to review to revise methodology to determine the selling price of co ...
Wednesday, 30 March 16
VALEMAXES: THE BIGGEST NIGHTMARE OF TODAY'S DRY BULK MARKET - INTERMODAL
At a time that Europe is still dealing with the aftermath of the terrorist attacks in Brussels our society is daily bombarded with news of terroris ...
Tuesday, 29 March 16
BULK CARRIER VENTILATION - CAPTAIN PAUL R. WALTON
KNOWLEDGE TO ELEVATE
Moisture damage is a source of many cargo claims. Claimants allege that it is brought about by the ship’s failure t ...
Monday, 28 March 16
INDONESIAN WEEKLY CS50 COAL INDEX CLOSED SLIGHTLY FIRM; CS 57 INDEX CLOSED WEAK
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.03 percent week over week to averaging $38.91 per ton on this past Thursday, ...
|
|
|
Showing 2501 to 2505 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Samtan Co., Ltd - South Korea
- Larsen & Toubro Limited - India
- Karaikal Port Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- IHS Mccloskey Coal Group - USA
- Bulk Trading Sa - Switzerland
- Global Coal Blending Company Limited - Australia
- Directorate Of Revenue Intelligence - India
- White Energy Company Limited
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- Altura Mining Limited, Indonesia
- Vizag Seaport Private Limited - India
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Neyveli Lignite Corporation Ltd, - India
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- McConnell Dowell - Australia
- Ambuja Cements Ltd - India
- MS Steel International - UAE
- SMG Consultants - Indonesia
- Merrill Lynch Commodities Europe
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Medco Energi Mining Internasional
- Ministry of Mines - Canada
- South Luzon Thermal Energy Corporation
- International Coal Ventures Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- Bharathi Cement Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- Videocon Industries ltd - India
- Vedanta Resources Plc - India
- Tata Chemicals Ltd - India
- OPG Power Generation Pvt Ltd - India
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Meralco Power Generation, Philippines
- Planning Commission, India
- Kaltim Prima Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- Sical Logistics Limited - India
- Port Waratah Coal Services - Australia
- Marubeni Corporation - India
- Therma Luzon, Inc, Philippines
- Bhushan Steel Limited - India
- Latin American Coal - Colombia
- Semirara Mining Corp, Philippines
- Banpu Public Company Limited - Thailand
- GVK Power & Infra Limited - India
- Borneo Indobara - Indonesia
- Xindia Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Rashtriya Ispat Nigam Limited - India
- Global Green Power PLC Corporation, Philippines
- Eastern Energy - Thailand
- PTC India Limited - India
- Kumho Petrochemical, South Korea
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Indika Energy - Indonesia
- Mjunction Services Limited - India
- New Zealand Coal & Carbon
- Semirara Mining and Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- Sakthi Sugars Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Alfred C Toepfer International GmbH - Germany
- Leighton Contractors Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- Star Paper Mills Limited - India
- Sarangani Energy Corporation, Philippines
- Trasteel International SA, Italy
- Makarim & Taira - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- The University of Queensland
- Mercuria Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Salva Resources Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Bahari Cakrawala Sebuku - Indonesia
- Coastal Gujarat Power Limited - India
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- GMR Energy Limited - India
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Tamil Nadu electricity Board
- Deloitte Consulting - India
- Australian Coal Association
- Agrawal Coal Company - India
- Pipit Mutiara Jaya. PT, Indonesia
- Energy Link Ltd, New Zealand
- Electricity Authority, New Zealand
- Economic Council, Georgia
- Mintek Dendrill Indonesia
- Edison Trading Spa - Italy
- Anglo American - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Standard Chartered Bank - UAE
- GN Power Mariveles Coal Plant, Philippines
- Barasentosa Lestari - Indonesia
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- Rio Tinto Coal - Australia
- Orica Mining Services - Indonesia
- Dalmia Cement Bharat India
- Billiton Holdings Pty Ltd - Australia
- Posco Energy - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- India Bulls Power Limited - India
- Cement Manufacturers Association - India
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Parliament of New Zealand
- ASAPP Information Group - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Finance - Indonesia
- Sree Jayajothi Cements Limited - India
- Cigading International Bulk Terminal - Indonesia
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Metalloyd Limited - United Kingdom
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Commonwealth Bank - Australia
- PetroVietnam Power Coal Import and Supply Company
- Ceylon Electricity Board - Sri Lanka
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Bhatia International Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Chettinad Cement Corporation Ltd - India
- Indogreen Group - Indonesia
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Uttam Galva Steels Limited - India
- Coal and Oil Company - UAE
- Krishnapatnam Port Company Ltd. - India
- Bangladesh Power Developement Board
- Indian Energy Exchange, India
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Georgia Ports Authority, United States
- Renaissance Capital - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- TeaM Sual Corporation - Philippines
- Electricity Generating Authority of Thailand
- Antam Resourcindo - Indonesia
- Romanian Commodities Exchange
- Globalindo Alam Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wilmar Investment Holdings
- Aboitiz Power Corporation - Philippines
- Eastern Coal Council - USA
|
| |
| |
|
