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, 24 November 15
COAL PRICES SET TO REMAIN UNDER PRESSURE UNTIL 2016 DUE TO OVER SUPPLY GLUT; H1 '16 COAL SWAPS DOWN 13% M-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery slid $5 per ton (12.05%) month over month to US$ 36.50 per ton. The s ...
Monday, 23 November 15
NEGATIVE 2016 OUTLOOK FOR WESTERN EUROPEAN STEEL - SAYS FITCH RATINGS
COALspot.com: European steel in 2016 are both negative for the sector and for issuer ratings.
This reflects our expectation that import levels ...
Monday, 23 November 15
DRY BULK MARKET: NET FLEET GROWTH IS SLOWING DOWN, AS SHIP OWNERS ARE LOOKING FOR WAYS TO ALLEVIATING MARKET MELTDOWN - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has been in “meltdown” mode for a few weeks now, unable to find support and avoid the fall in historical lows. As s ...
Monday, 23 November 15
CS50 COAL INDEX CLOSED AT $40.27 PER TON; FELL 0.15% FROM LAST WEEK
COALspot.com: The 5700 GAR CS (i) coal index fell by US cents 3 per ton week over week on 20 November 2015. CS 57 (5700 GAR coal) index closed at U ...
Monday, 23 November 15
CFR SOUTH CHINA COAL SWAPS FALL FURTHER ON LOW DEMAND
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 6.75 (13.99%) per ton month over month.
A commodity swa ...
|
|
|
Showing 2696 to 2700 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Kohat Cement Company Ltd. - Pakistan
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- Australian Commodity Traders Exchange
- Parliament of New Zealand
- Salva Resources Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Interocean Group of Companies - India
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Eastern Energy - Thailand
- Global Green Power PLC Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Ministry of Mines - Canada
- Toyota Tsusho Corporation, Japan
- Iligan Light & Power Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- Holcim Trading Pte Ltd - Singapore
- Kaltim Prima Coal - Indonesia
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- SMG Consultants - Indonesia
- Aditya Birla Group - India
- Pendopo Energi Batubara - Indonesia
- Straits Asia Resources Limited - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Cigading International Bulk Terminal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- CIMB Investment Bank - Malaysia
- Mjunction Services Limited - India
- Miang Besar Coal Terminal - Indonesia
- Petron Corporation, Philippines
- Chamber of Mines of South Africa
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Banpu Public Company Limited - Thailand
- MS Steel International - UAE
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Metalloyd Limited - United Kingdom
- Manunggal Multi Energi - Indonesia
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- LBH Netherlands Bv - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- Globalindo Alam Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indonesian Coal Mining Association
- CNBM International Corporation - China
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sakthi Sugars Limited - India
- Agrawal Coal Company - India
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- Malabar Cements Ltd - India
- Sical Logistics Limited - India
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Altura Mining Limited, Indonesia
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Indo Tambangraya Megah - Indonesia
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Simpson Spence & Young - Indonesia
- Ministry of Finance - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Uttam Galva Steels Limited - India
- India Bulls Power Limited - India
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Indogreen Group - Indonesia
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Dalmia Cement Bharat India
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- IEA Clean Coal Centre - UK
- PowerSource Philippines DevCo
- Lanco Infratech Ltd - India
- Savvy Resources Ltd - HongKong
- PetroVietnam Power Coal Import and Supply Company
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Wilmar Investment Holdings
- Economic Council, Georgia
- Chettinad Cement Corporation Ltd - India
- Kumho Petrochemical, South Korea
- Kartika Selabumi Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Ind-Barath Power Infra Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Formosa Plastics Group - Taiwan
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- London Commodity Brokers - England
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- Latin American Coal - Colombia
- Coalindo Energy - Indonesia
- Electricity Authority, New Zealand
- Carbofer General Trading SA - India
- Independent Power Producers Association of India
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Aboitiz Power Corporation - Philippines
- Indian Energy Exchange, India
- Tata Chemicals Ltd - India
- OPG Power Generation Pvt Ltd - India
- Edison Trading Spa - Italy
- Vijayanagar Sugar Pvt Ltd - India
- Anglo American - United Kingdom
- Central Java Power - Indonesia
- TeaM Sual Corporation - Philippines
- Baramulti Group, Indonesia
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- Global Coal Blending Company Limited - Australia
- Power Finance Corporation Ltd., India
- The Treasury - Australian Government
- Bhatia International Limited - India
- Xindia Steels Limited - India
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- The State Trading Corporation of India Ltd
- Bukit Makmur.PT - Indonesia
- South Luzon Thermal Energy Corporation
- Sinarmas Energy and Mining - Indonesia
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- Siam City Cement PLC, Thailand
- Singapore Mercantile Exchange
- Riau Bara Harum - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Sindya Power Generating Company Private Ltd
- ASAPP Information Group - India
- Bharathi Cement Corporation - India
- Georgia Ports Authority, United States
- Indika Energy - Indonesia
- Ministry of Transport, Egypt
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- ICICI Bank Limited - India
- White Energy Company Limited
- Rio Tinto Coal - Australia
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Medco Energi Mining Internasional
- Meenaskhi Energy Private Limited - India
- Kobexindo Tractors - Indoneisa
- Barasentosa Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Global Business Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Makarim & Taira - Indonesia
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Price Waterhouse Coopers - Russia
- Vedanta Resources Plc - India
- SMC Global Power, Philippines
- Electricity Generating Authority of Thailand
- Bayan Resources Tbk. - Indonesia
|
| |
| |
|
