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.
|
|
Monday, 27 October 14
CFR SOUTH CHINA COAL SWAPS PERFORMED POSITIVE THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery decreased US$ 1.68 (-2.55%) month over month and increased US$ 0.87 (+1.3 ...
Sunday, 26 October 14
CAPE'S STRONG PERFORMANCE PUSHES BDI INDEX UPWARDS
COALspot.com: The BDI was up by 26.27 pct and closed at 1192 points week and week. The Cape size performance has pushed up BDI and Cape size index ...
Friday, 24 October 14
WEEKLY U.S COAL PRODUCTION DOWN 2.7% FOR THE WEEK ENDING OCTOBER 18
COALspot.com – United States the world's one of largest coal producers, produced approximately 18.7 million short tons (mmst) of coal in ...
Thursday, 23 October 14
THE BEARS, HOWEVER, STILL CRY; FOR HOW LONG WILL IT LAST? - FEARNLEYS
Handy
"We experience a typical oversupply of ships in the Atlantic which causing rates to slide. In the USG it is just enough cargoes to kee ...
Wednesday, 22 October 14
MARKET INSIGHT - THEODORE NTALAKOS, INTERMODAL
ECO designs - revisited
The ECO vessels are already here but the oil and bunker prices are plummeting to their cheapest level since 2010. Is this ...
|
|
|
Showing 3411 to 3415 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Minerals Council of Australia
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Uttam Galva Steels Limited - India
- Oldendorff Carriers - Singapore
- VISA Power Limited - India
- Indo Tambangraya Megah - Indonesia
- IHS Mccloskey Coal Group - USA
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Jaiprakash Power Ventures ltd
- Makarim & Taira - Indonesia
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- Indian Oil Corporation Limited
- Gujarat Electricity Regulatory Commission - India
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Mintek Dendrill Indonesia
- South Luzon Thermal Energy Corporation
- Petron Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Generating Authority of Thailand
- TeaM Sual Corporation - Philippines
- Heidelberg Cement - Germany
- Borneo Indobara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dalmia Cement Bharat India
- Ministry of Mines - Canada
- Standard Chartered Bank - UAE
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Agrawal Coal Company - India
- Indogreen Group - Indonesia
- Economic Council, Georgia
- CNBM International Corporation - China
- Bulk Trading Sa - Switzerland
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- Malabar Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Sical Logistics Limited - India
- Cigading International Bulk Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Xindia Steels Limited - India
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- The University of Queensland
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Metalloyd Limited - United Kingdom
- Altura Mining Limited, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- IEA Clean Coal Centre - UK
- Sarangani Energy Corporation, Philippines
- Bangladesh Power Developement Board
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Australian Coal Association
- Antam Resourcindo - Indonesia
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- Electricity Authority, New Zealand
- GMR Energy Limited - India
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- SMG Consultants - Indonesia
- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Kepco SPC Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Attock Cement Pakistan Limited
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- Latin American Coal - Colombia
- Asmin Koalindo Tuhup - Indonesia
- Kumho Petrochemical, South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- London Commodity Brokers - England
- Energy Development Corp, Philippines
- Commonwealth Bank - Australia
- Siam City Cement - Thailand
- Ambuja Cements Ltd - India
- Mercuria Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Tamil Nadu electricity Board
- Bukit Makmur.PT - Indonesia
- Goldman Sachs - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Romanian Commodities Exchange
- CIMB Investment Bank - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- Ind-Barath Power Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Intertek Mineral Services - Indonesia
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Anglo American - United Kingdom
- Bhatia International Limited - India
- Simpson Spence & Young - Indonesia
- Toyota Tsusho Corporation, Japan
- Krishnapatnam Port Company Ltd. - India
- Interocean Group of Companies - India
- Rio Tinto Coal - Australia
- Jorong Barutama Greston.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The State Trading Corporation of India Ltd
- Aboitiz Power Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Savvy Resources Ltd - HongKong
- Rashtriya Ispat Nigam Limited - India
- Salva Resources Pvt Ltd - India
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Meralco Power Generation, Philippines
- Global Business Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Africa Commodities Group - South Africa
- OPG Power Generation Pvt Ltd - India
- Posco Energy - South Korea
- Parliament of New Zealand
- Georgia Ports Authority, United States
- Leighton Contractors Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- Power Finance Corporation Ltd., India
- Kaltim Prima Coal - Indonesia
- Parry Sugars Refinery, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kobexindo Tractors - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- MS Steel International - UAE
- Therma Luzon, Inc, Philippines
- New Zealand Coal & Carbon
- Meenaskhi Energy Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Directorate Of Revenue Intelligence - India
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- Wilmar Investment Holdings
- GN Power Mariveles Coal Plant, Philippines
- Eastern Coal Council - USA
- Riau Bara Harum - Indonesia
- Deloitte Consulting - India
- Star Paper Mills Limited - India
- Pendopo Energi Batubara - Indonesia
- GAC Shipping (India) Pvt Ltd
- Thai Mozambique Logistica
- Holcim Trading Pte Ltd - Singapore
- PNOC Exploration Corporation - Philippines
- Kideco Jaya Agung - Indonesia
- Australian Commodity Traders Exchange
- AsiaOL BioFuels Corp., Philippines
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- McConnell Dowell - Australia
- Carbofer General Trading SA - India
- Chamber of Mines of South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Medco Energi Mining Internasional
- Indika Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Sidhee Cement - India
- Bhoruka Overseas - Indonesia
- India Bulls Power Limited - India
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Price Waterhouse Coopers - Russia
- Eastern Energy - Thailand
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
|
| |
| |
|
