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.
|
|
Wednesday, 07 January 15
FUEL EFFICIENT SHIPS MAKE LESS SENSE IN LOWER BUNKER PRICE MARKET, BUT FUEL COSTS ARE BOUND TO RISE AGAIN
The shipping industry entered 2015 on mixed emotions, as a relatively buoyant tanker market is met by a rather lackluster dry bulk market. Still, a ...
Wednesday, 07 January 15
2015 IS RIDDLED WITH CHALLENGES FOR THE SHIPPING SECTOR, MOST NOTABLY THE DRY BULK MARKET - HELLENIC SHIPPING NEWS
As the new year has now set foot for real, many are still looking to detect what’s in store for the various shipping markets, with the first ...
Tuesday, 06 January 15
SHIPPING MUST ADOPT CAN-DO ATTITUDE IN 2015 - MOORE STEPHENS
Shipping needs to adopt a can-do attitude in order to successfully meet the challenges which are likely to come its way in 2015.
Shipping part ...
Tuesday, 06 January 15
Q4' 15 FOB INDONESIA COAL SWAP CLOSED 1.81% HIGHER COMPARED TO Q1' 15 CLOSING
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 0.74 (-1.51%) m ...
Tuesday, 06 January 15
FOB RICHARDS BAY COAL SWAPS LOST W-O-W AND M-O-M, SGX DATA SHOWS
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 3.52 (-5. ...
|
|
|
Showing 3271 to 3275 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- LBH Netherlands Bv - Netherlands
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Aditya Birla Group - India
- Ministry of Mines - Canada
- European Bulk Services B.V. - Netherlands
- Sakthi Sugars Limited - India
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- Energy Development Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Lanco Infratech Ltd - India
- Bhoruka Overseas - Indonesia
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- Independent Power Producers Association of India
- Attock Cement Pakistan Limited
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Mercuria Energy - Indonesia
- Antam Resourcindo - Indonesia
- Australian Coal Association
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Kaltim Prima Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Jindal Steel & Power Ltd - India
- Samtan Co., Ltd - South Korea
- Mintek Dendrill Indonesia
- Bayan Resources Tbk. - Indonesia
- Energy Link Ltd, New Zealand
- Singapore Mercantile Exchange
- Barasentosa Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Planning Commission, India
- Rio Tinto Coal - Australia
- Ceylon Electricity Board - Sri Lanka
- Chamber of Mines of South Africa
- Star Paper Mills Limited - India
- Xindia Steels Limited - India
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Kohat Cement Company Ltd. - Pakistan
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Straits Asia Resources Limited - Singapore
- AsiaOL BioFuels Corp., Philippines
- GMR Energy Limited - India
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- Kideco Jaya Agung - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Grasim Industreis Ltd - India
- Kapuas Tunggal Persada - Indonesia
- London Commodity Brokers - England
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Ministry of Finance - Indonesia
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- The State Trading Corporation of India Ltd
- Indian Energy Exchange, India
- Orica Mining Services - Indonesia
- Electricity Authority, New Zealand
- PTC India Limited - India
- Thiess Contractors Indonesia
- South Luzon Thermal Energy Corporation
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- Binh Thuan Hamico - Vietnam
- Coastal Gujarat Power Limited - India
- Thai Mozambique Logistica
- Price Waterhouse Coopers - Russia
- Bharathi Cement Corporation - India
- Central Java Power - Indonesia
- Ministry of Transport, Egypt
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Indonesian Coal Mining Association
- Intertek Mineral Services - Indonesia
- Georgia Ports Authority, United States
- Pipit Mutiara Jaya. PT, Indonesia
- Vedanta Resources Plc - India
- Bahari Cakrawala Sebuku - Indonesia
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- Kartika Selabumi Mining - Indonesia
- Australian Commodity Traders Exchange
- Indogreen Group - Indonesia
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Mercator Lines Limited - India
- Latin American Coal - Colombia
- Meenaskhi Energy Private Limited - India
- New Zealand Coal & Carbon
- Dalmia Cement Bharat India
- Meralco Power Generation, Philippines
- Global Coal Blending Company Limited - Australia
- Medco Energi Mining Internasional
- GN Power Mariveles Coal Plant, Philippines
- Indian Oil Corporation Limited
- Ambuja Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- Madhucon Powers Ltd - India
- Directorate Of Revenue Intelligence - India
- Holcim Trading Pte Ltd - Singapore
- Sojitz Corporation - Japan
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- Leighton Contractors Pty Ltd - Australia
- Oldendorff Carriers - Singapore
- MS Steel International - UAE
- PetroVietnam Power Coal Import and Supply Company
- Sinarmas Energy and Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- Carbofer General Trading SA - India
- Malabar Cements Ltd - India
- Edison Trading Spa - Italy
- Baramulti Group, Indonesia
- GAC Shipping (India) Pvt Ltd
- Karbindo Abesyapradhi - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Videocon Industries ltd - India
- Jorong Barutama Greston.PT - Indonesia
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- The University of Queensland
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Africa Commodities Group - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Merrill Lynch Commodities Europe
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Wood Mackenzie - Singapore
- Sical Logistics Limited - India
- Petron Corporation, Philippines
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- Eastern Coal Council - USA
- Eastern Energy - Thailand
- Goldman Sachs - Singapore
- Orica Australia Pty. Ltd.
- Therma Luzon, Inc, Philippines
- TeaM Sual Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Metalloyd Limited - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Parliament of New Zealand
- Sindya Power Generating Company Private Ltd
- Coal and Oil Company - UAE
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- CIMB Investment Bank - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- SMC Global Power, Philippines
- Wilmar Investment Holdings
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- Jaiprakash Power Ventures ltd
- Uttam Galva Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
|
| |
| |
|
