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, 26 July 22
CAP RUSSIA'S OIL PRICE NOW - PROJECT SYNDICATE
Though the price of oil has declined in recent weeks, it is still through the roof, filtering through to gasoline prices, and causing economic and ...
Tuesday, 26 July 22
WILL SOUTH AMERICA’S WINTER DEMAND DRAW LNG CARGOES AWAY FROM EUROPE? - ICIS
South America is now in the middle of its winter demand season. Last year the region increased its share of global LNG imports in winter, with Braz ...
Monday, 25 July 22
GLOBAL 2021 COAL-FIRED ELECTRICITY GENERATION SURGES TO RECORD HIGH - REUTERS
By contrast, mine output was still fractionally below the record set between 2012 and 2014 because older and less efficient coal generators have be ...
Saturday, 23 July 22
THE EU HAS BEEN REDUCING IMPORTS OF RUSSIAN REFINED OIL PRODUCTS SINCE MARCH - BANCHERO COSTA
The European Union could now ban the import and transit of fuel oil from Russia around six months ahead of the planned deadline, an EU official and ...
Saturday, 23 July 22
INDONESIA CONSIDERING SCRAPPING DOMESTIC SALES RULE FOR PALM OIL EXPORTS - REUTERS
Indonesia is considering removing a domestic sales requirement for palm oil exports because high inventories of the vegetable oil have been holding ...
|
|
|
Showing 276 to 280 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Central Electricity Authority - India
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Metalloyd Limited - United Kingdom
- Bulk Trading Sa - Switzerland
- Alfred C Toepfer International GmbH - Germany
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Singapore Mercantile Exchange
- Toyota Tsusho Corporation, Japan
- Global Coal Blending Company Limited - Australia
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Standard Chartered Bank - UAE
- Iligan Light & Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Attock Cement Pakistan Limited
- Independent Power Producers Association of India
- Thai Mozambique Logistica
- Star Paper Mills Limited - India
- Sarangani Energy Corporation, Philippines
- Ministry of Finance - Indonesia
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- Semirara Mining Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- Goldman Sachs - Singapore
- Bhushan Steel Limited - India
- Leighton Contractors Pty Ltd - Australia
- Kobexindo Tractors - Indoneisa
- Borneo Indobara - Indonesia
- CIMB Investment Bank - Malaysia
- Sree Jayajothi Cements Limited - India
- Rashtriya Ispat Nigam Limited - India
- Intertek Mineral Services - Indonesia
- Global Business Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Ministry of Mines - Canada
- Vijayanagar Sugar Pvt Ltd - India
- Renaissance Capital - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Minerals Council of Australia
- Videocon Industries ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Australia Pty. Ltd.
- The Treasury - Australian Government
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhatia International Limited - India
- Sinarmas Energy and Mining - Indonesia
- Romanian Commodities Exchange
- Parry Sugars Refinery, India
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- Directorate Of Revenue Intelligence - India
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Eastern Coal Council - USA
- Australian Coal Association
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- IEA Clean Coal Centre - UK
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Power Finance Corporation Ltd., India
- Bahari Cakrawala Sebuku - Indonesia
- Parliament of New Zealand
- Salva Resources Pvt Ltd - India
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- TNB Fuel Sdn Bhd - Malaysia
- Indogreen Group - Indonesia
- Orica Mining Services - Indonesia
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- Merrill Lynch Commodities Europe
- Cement Manufacturers Association - India
- Bukit Makmur.PT - Indonesia
- Siam City Cement PLC, Thailand
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- SMC Global Power, Philippines
- Kartika Selabumi Mining - Indonesia
- Uttam Galva Steels Limited - India
- Thiess Contractors Indonesia
- Agrawal Coal Company - India
- Straits Asia Resources Limited - Singapore
- Carbofer General Trading SA - India
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
- South Luzon Thermal Energy Corporation
- Makarim & Taira - Indonesia
- Trasteel International SA, Italy
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- Malabar Cements Ltd - India
- Coal and Oil Company - UAE
- OPG Power Generation Pvt Ltd - India
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- GVK Power & Infra Limited - India
- VISA Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Electricity Generating Authority of Thailand
- Binh Thuan Hamico - Vietnam
- Chamber of Mines of South Africa
- Banpu Public Company Limited - Thailand
- Indika Energy - Indonesia
- Marubeni Corporation - India
- Electricity Authority, New Zealand
- Indo Tambangraya Megah - Indonesia
- Grasim Industreis Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Meenaskhi Energy Private Limited - India
- Deloitte Consulting - India
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Bangladesh Power Developement Board
- Petrochimia International Co. Ltd.- Taiwan
- Bharathi Cement Corporation - India
- SMG Consultants - Indonesia
- London Commodity Brokers - England
- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- Heidelberg Cement - Germany
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Krishnapatnam Port Company Ltd. - India
- Coalindo Energy - Indonesia
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- India Bulls Power Limited - India
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Mintek Dendrill Indonesia
- Mercator Lines Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Australian Commodity Traders Exchange
- The State Trading Corporation of India Ltd
- LBH Netherlands Bv - Netherlands
- Edison Trading Spa - Italy
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GMR Energy Limited - India
- Bayan Resources Tbk. - Indonesia
- Sojitz Corporation - Japan
- Energy Link Ltd, New Zealand
- Economic Council, Georgia
- Semirara Mining and Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
- Larsen & Toubro Limited - India
- Lanco Infratech Ltd - India
- PNOC Exploration Corporation - Philippines
- Wood Mackenzie - Singapore
- Miang Besar Coal Terminal - Indonesia
- Indian Oil Corporation Limited
- Vedanta Resources Plc - India
- Commonwealth Bank - Australia
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Vizag Seaport Private Limited - India
- European Bulk Services B.V. - Netherlands
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Bukit Baiduri Energy - Indonesia
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- New Zealand Coal & Carbon
- Interocean Group of Companies - India
- Maharashtra Electricity Regulatory Commission - India
|
| |
| |
|
