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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
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Thursday, 26 February 15
DRY BULK MARKET LOOKING FOR POSITIVE MOMENTUM, BUT PROSPECTS REMAIN DIM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
As the Baltic Dry Index (BDI) inched a bit higher over the past couple of sessions and the Chinese are returning to the market after a week long hi ...
Wednesday, 25 February 15
PORT OF NEWCASTLE SHIPPED 13.16MT OF COAL IN JANUARY; DECLINED 16.70% FROM A MONTH AGO
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.15 billio ...
Wednesday, 25 February 15
BDI SLIPPING ONCE MORE TO FRESH HISTORICAL LOWS
COALspot.com: With the BDI slipping once more to fresh historical lows and the Chinese holidays underway, signs for a positive reversal in the Dry ...
Tuesday, 24 February 15
FOB INDONESIA COAL SWAP SET TO RALLY
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap increased US$ 3.30 (+7.30%) ...
Tuesday, 24 February 15
Q3' FOB RICHARDS BAY COAL SWAP CLOSED $59.80 W/E 20 FEB
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month and decline week on week.
The Q2 swap has soar ...
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Showing 3176 to 3180 news of total 6871 |
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coastal Gujarat Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Port Waratah Coal Services - Australia
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Chettinad Cement Corporation Ltd - India
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Star Paper Mills Limited - India
- Wood Mackenzie - Singapore
- Parliament of New Zealand
- The Treasury - Australian Government
- Timah Investasi Mineral - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cement Manufacturers Association - India
- Straits Asia Resources Limited - Singapore
- TeaM Sual Corporation - Philippines
- Minerals Council of Australia
- SN Aboitiz Power Inc, Philippines
- Posco Energy - South Korea
- Heidelberg Cement - Germany
- Indian Oil Corporation Limited
- Australian Coal Association
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Mintek Dendrill Indonesia
- Deloitte Consulting - India
- Karbindo Abesyapradhi - Indoneisa
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Maheswari Brothers Coal Limited - India
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Georgia Ports Authority, United States
- Electricity Authority, New Zealand
- Ind-Barath Power Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Mjunction Services Limited - India
- Orica Australia Pty. Ltd.
- Semirara Mining Corp, Philippines
- Aditya Birla Group - India
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Thiess Contractors Indonesia
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Agrawal Coal Company - India
- Mercuria Energy - Indonesia
- Riau Bara Harum - Indonesia
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Merrill Lynch Commodities Europe
- Asmin Koalindo Tuhup - Indonesia
- Borneo Indobara - Indonesia
- Malabar Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- Sindya Power Generating Company Private Ltd
- Energy Link Ltd, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- ICICI Bank Limited - India
- Commonwealth Bank - Australia
- Samtan Co., Ltd - South Korea
- ASAPP Information Group - India
- Iligan Light & Power Inc, Philippines
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- Standard Chartered Bank - UAE
- Globalindo Alam Lestari - Indonesia
- The University of Queensland
- Directorate General of MIneral and Coal - Indonesia
- PNOC Exploration Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Anglo American - United Kingdom
- VISA Power Limited - India
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- Mercator Lines Limited - India
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- GVK Power & Infra Limited - India
- Power Finance Corporation Ltd., India
- Romanian Commodities Exchange
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Lanco Infratech Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- PowerSource Philippines DevCo
- Billiton Holdings Pty Ltd - Australia
- Tamil Nadu electricity Board
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- AsiaOL BioFuels Corp., Philippines
- Planning Commission, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- GMR Energy Limited - India
- Kepco SPC Power Corporation, Philippines
- India Bulls Power Limited - India
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- Bhoruka Overseas - Indonesia
- White Energy Company Limited
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- Ceylon Electricity Board - Sri Lanka
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Savvy Resources Ltd - HongKong
- Makarim & Taira - Indonesia
- Jaiprakash Power Ventures ltd
- Attock Cement Pakistan Limited
- Ministry of Transport, Egypt
- Vizag Seaport Private Limited - India
- Bharathi Cement Corporation - India
- Siam City Cement PLC, Thailand
- Barasentosa Lestari - Indonesia
- Sojitz Corporation - Japan
- Indogreen Group - Indonesia
- Interocean Group of Companies - India
- GN Power Mariveles Coal Plant, Philippines
- Alfred C Toepfer International GmbH - Germany
- Bhushan Steel Limited - India
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- Bhatia International Limited - India
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Indonesian Coal Mining Association
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Miang Besar Coal Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Xindia Steels Limited - India
- Petron Corporation, Philippines
- Madhucon Powers Ltd - India
- New Zealand Coal & Carbon
- Latin American Coal - Colombia
- Antam Resourcindo - Indonesia
- Grasim Industreis Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Orica Mining Services - Indonesia
- The State Trading Corporation of India Ltd
- Ministry of Mines - Canada
- Bulk Trading Sa - Switzerland
- Sinarmas Energy and Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Oldendorff Carriers - Singapore
- Manunggal Multi Energi - Indonesia
- Siam City Cement - Thailand
- South Luzon Thermal Energy Corporation
- Coal and Oil Company - UAE
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- Aboitiz Power Corporation - Philippines
- Marubeni Corporation - India
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- Ambuja Cements Ltd - India
- Meralco Power Generation, Philippines
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- Semirara Mining and Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- IEA Clean Coal Centre - UK
- Meenaskhi Energy Private Limited - India
- Sree Jayajothi Cements Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Goldman Sachs - Singapore
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Edison Trading Spa - Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Uttam Galva Steels Limited - India
- Central Electricity Authority - India
- Ministry of Finance - Indonesia
- Kumho Petrochemical, South Korea
- Simpson Spence & Young - Indonesia
- Bayan Resources Tbk. - Indonesia
- Therma Luzon, Inc, Philippines
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Carbofer General Trading SA - India
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