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, 19 February 16
INDONESIAN HBA HITS A NEW LOWS BELOW $51 A TON AS OVERSUPPLY, LOW DEMAND WOES PERSIST
COALspot.com: Low coal demand and excess supplies sent Indonesian benchmark coal price further deep in February 2016. HBA has slumped second time t ...
Friday, 19 February 16
U.S. WEEKLY COAL PRODUCTION ROSE 2.6% FROM LAST WEEK - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 13.2 million shor ...
Thursday, 18 February 16
INDIA NEEDS INTERNATIONAL SUPPORT ON HIGH EFFICIENCY COAL - WORLD COAL ASSOCIATION
Speaking at a conference in New Delhi today, World Coal Association Chief Executive Benjamin Sporton said the critical role of coal in driving econ ...
Thursday, 18 February 16
CHINA COAL SECTOR - 2015 RESULTS BLEAK, 2016 UNLIKELY TO BE ANY BETTER - FITCH
COALspot.com: China Coal Sector’s Financial Woes to Worsen in 2016.
Fitch Ratings says that the 2015 full-year result previews issued by ...
Thursday, 18 February 16
PANAMAX RATES OUT OF ECSA WERE STILL GAINING A PREMIUM OVER THE REST OF THE MARKET - INTERMODAL
The BDI moved further down last week, fact that hardly took anyone by surprise as the lunar year holidays in Asia on top of the already depre ...
|
|
|
Showing 2556 to 2560 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Planning Commission, India
- IHS Mccloskey Coal Group - USA
- Price Waterhouse Coopers - Russia
- Ministry of Mines - Canada
- Bukit Asam (Persero) Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Energy Development Corp, Philippines
- Attock Cement Pakistan Limited
- Star Paper Mills Limited - India
- Straits Asia Resources Limited - Singapore
- Gujarat Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Kalimantan Lumbung Energi - Indonesia
- GVK Power & Infra Limited - India
- India Bulls Power Limited - India
- PTC India Limited - India
- Directorate Of Revenue Intelligence - India
- Orica Australia Pty. Ltd.
- Savvy Resources Ltd - HongKong
- Electricity Authority, New Zealand
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Vizag Seaport Private Limited - India
- Baramulti Group, Indonesia
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Grasim Industreis Ltd - India
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- GMR Energy Limited - India
- Makarim & Taira - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Medco Energi Mining Internasional
- Sojitz Corporation - Japan
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Oldendorff Carriers - Singapore
- Chamber of Mines of South Africa
- GAC Shipping (India) Pvt Ltd
- Essar Steel Hazira Ltd - India
- Renaissance Capital - South Africa
- Power Finance Corporation Ltd., India
- Australian Coal Association
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Riau Bara Harum - Indonesia
- The University of Queensland
- Miang Besar Coal Terminal - Indonesia
- London Commodity Brokers - England
- Binh Thuan Hamico - Vietnam
- Indogreen Group - Indonesia
- Aditya Birla Group - India
- Latin American Coal - Colombia
- Rashtriya Ispat Nigam Limited - India
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- OPG Power Generation Pvt Ltd - India
- Larsen & Toubro Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Anglo American - United Kingdom
- Marubeni Corporation - India
- Sakthi Sugars Limited - India
- New Zealand Coal & Carbon
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Maharashtra Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Interocean Group of Companies - India
- Globalindo Alam Lestari - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- Borneo Indobara - Indonesia
- Salva Resources Pvt Ltd - India
- Sical Logistics Limited - India
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- Siam City Cement PLC, Thailand
- ICICI Bank Limited - India
- Mercuria Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- TNB Fuel Sdn Bhd - Malaysia
- San Jose City I Power Corp, Philippines
- Kumho Petrochemical, South Korea
- Pendopo Energi Batubara - Indonesia
- Georgia Ports Authority, United States
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Heidelberg Cement - Germany
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Parry Sugars Refinery, India
- Jorong Barutama Greston.PT - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- TeaM Sual Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Mintek Dendrill Indonesia
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bukit Makmur.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- Wood Mackenzie - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thiess Contractors Indonesia
- IEA Clean Coal Centre - UK
- SN Aboitiz Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- Sree Jayajothi Cements Limited - India
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Kideco Jaya Agung - Indonesia
- International Coal Ventures Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Thai Mozambique Logistica
- Africa Commodities Group - South Africa
- Toyota Tsusho Corporation, Japan
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- Romanian Commodities Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Independent Power Producers Association of India
- Bukit Baiduri Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Standard Chartered Bank - UAE
- Electricity Generating Authority of Thailand
- MS Steel International - UAE
- Australian Commodity Traders Exchange
- Ministry of Transport, Egypt
- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
- Mjunction Services Limited - India
- Kobexindo Tractors - Indoneisa
- Posco Energy - South Korea
- McConnell Dowell - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rio Tinto Coal - Australia
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Malabar Cements Ltd - India
- Orica Mining Services - Indonesia
- Bhoruka Overseas - Indonesia
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Krishnapatnam Port Company Ltd. - India
- Sinarmas Energy and Mining - Indonesia
- Coal and Oil Company - UAE
- PNOC Exploration Corporation - Philippines
- Videocon Industries ltd - India
- Indian Energy Exchange, India
- Bharathi Cement Corporation - India
- The Treasury - Australian Government
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Parliament of New Zealand
- Wilmar Investment Holdings
- Deloitte Consulting - India
- Chettinad Cement Corporation Ltd - India
- Global Business Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Edison Trading Spa - Italy
- Antam Resourcindo - Indonesia
- Indika Energy - Indonesia
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- VISA Power Limited - India
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
|
| |
| |
|
