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, 19 July 22
SEEING RED? - WOOD MACKENZIE
What a Republican mid-term victory could mean for US energy and climate policy
According to current polling the Republican Party has ...
Thursday, 14 July 22
INDIA'S COAL IMPORTS HIT RECORD HIGH IN JUNE - REUTERS
India's coal imports hit a record high in June despite high global prices, data from three trade sources and Refinitiv ship tracking showed, as ...
Thursday, 14 July 22
CHINA'S JUNE COAL IMPORTS SLUMP AS TRADERS SHUN EXPENSIVE OVERSEAS CARGOES - REUTERS
China’s coal imports fell 33% in June from a year ago, with traders turning down expensive overseas cargoes in favor of domestic ones with ca ...
Wednesday, 13 July 22
KOWEPO TO IMPORT 2.79 MILLION TONS OF LOW TO MEDIUM COAL
COALspot.com: Korea Western Power Co., Ltd. (KOWEPO) has issued an International tender for Total 1360k MT of Min.4400 kcal/kg NCV coal and Total 1 ...
Wednesday, 13 July 22
HAVE MINERS MISSED THE BOAT TO INVEST AND GET AHEAD OF THE ENERGY TRANSITION? - WOOD MACKENZIE
Miners are in rude health, benefiting from economic stimuli, the post-pandemic recovery and associated supply constraints. Initially the Ukraine wa ...
|
|
|
Showing 291 to 295 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Sakthi Sugars Limited - India
- GMR Energy Limited - India
- Timah Investasi Mineral - Indoneisa
- Deloitte Consulting - India
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Makmur.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Merrill Lynch Commodities Europe
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Asmin Koalindo Tuhup - Indonesia
- Indonesian Coal Mining Association
- Sical Logistics Limited - India
- Ministry of Mines - Canada
- Indogreen Group - Indonesia
- MS Steel International - UAE
- Barasentosa Lestari - Indonesia
- Global Business Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Straits Asia Resources Limited - Singapore
- Ministry of Finance - Indonesia
- Borneo Indobara - Indonesia
- Sarangani Energy Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- Altura Mining Limited, Indonesia
- Bangladesh Power Developement Board
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- Renaissance Capital - South Africa
- Krishnapatnam Port Company Ltd. - India
- Latin American Coal - Colombia
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- IEA Clean Coal Centre - UK
- ICICI Bank Limited - India
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- Trasteel International SA, Italy
- Billiton Holdings Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Edison Trading Spa - Italy
- Gujarat Mineral Development Corp Ltd - India
- Aboitiz Power Corporation - Philippines
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- McConnell Dowell - Australia
- Thiess Contractors Indonesia
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Grasim Industreis Ltd - India
- Holcim Trading Pte Ltd - Singapore
- The University of Queensland
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- Xindia Steels Limited - India
- Gujarat Sidhee Cement - India
- Karbindo Abesyapradhi - Indoneisa
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Indian Oil Corporation Limited
- Larsen & Toubro Limited - India
- Sinarmas Energy and Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Semirara Mining Corp, Philippines
- Simpson Spence & Young - Indonesia
- Anglo American - United Kingdom
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
- Bukit Asam (Persero) Tbk - Indonesia
- Meralco Power Generation, Philippines
- Marubeni Corporation - India
- Mintek Dendrill Indonesia
- Parliament of New Zealand
- Kepco SPC Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- Minerals Council of Australia
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Banpu Public Company Limited - Thailand
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- Aditya Birla Group - India
- Jaiprakash Power Ventures ltd
- PNOC Exploration Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Ministry of Transport, Egypt
- PTC India Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Kobexindo Tractors - Indoneisa
- Sindya Power Generating Company Private Ltd
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- Dalmia Cement Bharat India
- Agrawal Coal Company - India
- Mercuria Energy - Indonesia
- Eastern Energy - Thailand
- Gujarat Electricity Regulatory Commission - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- Romanian Commodities Exchange
- Wood Mackenzie - Singapore
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Medco Energi Mining Internasional
- New Zealand Coal & Carbon
- The Treasury - Australian Government
- VISA Power Limited - India
- Energy Development Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Metalloyd Limited - United Kingdom
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- TeaM Sual Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Semirara Mining and Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- SMC Global Power, Philippines
- Uttam Galva Steels Limited - India
- SMG Consultants - Indonesia
- Carbofer General Trading SA - India
- Global Green Power PLC Corporation, Philippines
- Bhushan Steel Limited - India
- Binh Thuan Hamico - Vietnam
- Mjunction Services Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Kaltim Prima Coal - Indonesia
- Chamber of Mines of South Africa
- Siam City Cement - Thailand
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- CIMB Investment Bank - Malaysia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Madhucon Powers Ltd - India
- Salva Resources Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Coalindo Energy - Indonesia
- Orica Australia Pty. Ltd.
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Miang Besar Coal Terminal - Indonesia
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- Sree Jayajothi Cements Limited - India
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- IHS Mccloskey Coal Group - USA
- LBH Netherlands Bv - Netherlands
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- Ambuja Cements Ltd - India
- India Bulls Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Samtan Co., Ltd - South Korea
- Australian Coal Association
- Attock Cement Pakistan Limited
- Mercator Lines Limited - India
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- Sojitz Corporation - Japan
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- ASAPP Information Group - India
- Indika Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Commonwealth Bank - Australia
- CNBM International Corporation - China
- Rio Tinto Coal - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Power Finance Corporation Ltd., India
- Globalindo Alam Lestari - Indonesia
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Georgia Ports Authority, United States
- Maharashtra Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Iligan Light & Power Inc, Philippines
|
| |
| |
|
