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.
|
|
Thursday, 02 October 14
CAPESIZE - DULL AND WITHOUT MUCH DIRECTION AS IRON ORE AND COAL VOLUMES FAIL TO LIVE UP EXPECTATIONS
Handy
After the recent weeks´ rate increase in the Atlantic we see Panamaxes snapping up handymax and Supra cargoes at much lower levels, p ...
Wednesday, 01 October 14
ASIAN THERMAL COAL PRICES TO REMAIN WEAK ON OVERSUPPLY - FITCH
COALspot.com: The thermal coal market in Asia will remain oversupplied in the next 12 months, in spite of on-going rationalisation of production, a ...
Wednesday, 01 October 14
PANAMAXES: DEFENSIVE, STRUGGLING TO KEEP ANY FURTHER DECREASES - INTERMODAL
COALspot.com: The Dry Bulk market seemed unable to shake off the trend of the week prior and the BDI remained on a downward slope for the bigger pa ...
Wednesday, 01 October 14
FITCH: GLOBAL ECONOMY FACES MULTI-SPEED RECOVERY, MULTIPLE RISKS
Fitch Ratings says in its latest Global Economic Outlook (GEO) that global growth will pick up in 2015 and 2016, but risks are weighted to the down ...
Tuesday, 30 September 14
COALVIEW TO PARTICIPATE AT MET COKE WORLD SUMMIT 2014 IN CHICAGO
COALspot.com: Coalview Ltd., LLC(“Coalview”) America's leading fully integrated coal technology and fine coal recovery company prov ...
|
|
|
Showing 3456 to 3460 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Makarim & Taira - Indonesia
- Central Java Power - Indonesia
- Electricity Authority, New Zealand
- Baramulti Group, Indonesia
- Directorate Of Revenue Intelligence - India
- Savvy Resources Ltd - HongKong
- Trasteel International SA, Italy
- Energy Development Corp, Philippines
- Sojitz Corporation - Japan
- Bhatia International Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- Deloitte Consulting - India
- Ministry of Finance - Indonesia
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Mercator Lines Limited - India
- PowerSource Philippines DevCo
- Globalindo Alam Lestari - Indonesia
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Antam Resourcindo - Indonesia
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Bulk Trading Sa - Switzerland
- Edison Trading Spa - Italy
- Rio Tinto Coal - Australia
- Videocon Industries ltd - India
- Essar Steel Hazira Ltd - India
- Kumho Petrochemical, South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coal and Oil Company - UAE
- Borneo Indobara - Indonesia
- Posco Energy - South Korea
- Thai Mozambique Logistica
- PTC India Limited - India
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- AsiaOL BioFuels Corp., Philippines
- Bukit Makmur.PT - Indonesia
- White Energy Company Limited
- Riau Bara Harum - Indonesia
- GAC Shipping (India) Pvt Ltd
- Banpu Public Company Limited - Thailand
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- Directorate General of MIneral and Coal - Indonesia
- CIMB Investment Bank - Malaysia
- SN Aboitiz Power Inc, Philippines
- The State Trading Corporation of India Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Grasim Industreis Ltd - India
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Bhoruka Overseas - Indonesia
- Intertek Mineral Services - Indonesia
- Indogreen Group - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Interocean Group of Companies - India
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Mintek Dendrill Indonesia
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Singapore Mercantile Exchange
- OPG Power Generation Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- European Bulk Services B.V. - Netherlands
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- Rashtriya Ispat Nigam Limited - India
- Timah Investasi Mineral - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Metalloyd Limited - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Coastal Gujarat Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Barasentosa Lestari - Indonesia
- Bangladesh Power Developement Board
- Indonesian Coal Mining Association
- London Commodity Brokers - England
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Bayan Resources Tbk. - Indonesia
- Wilmar Investment Holdings
- Jindal Steel & Power Ltd - India
- GMR Energy Limited - India
- SMG Consultants - Indonesia
- Chamber of Mines of South Africa
- Ministry of Mines - Canada
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Sical Logistics Limited - India
- Bhushan Steel Limited - India
- Global Green Power PLC Corporation, Philippines
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Neyveli Lignite Corporation Ltd, - India
- Samtan Co., Ltd - South Korea
- Global Business Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- Planning Commission, India
- Bahari Cakrawala Sebuku - Indonesia
- Bharathi Cement Corporation - India
- Tamil Nadu electricity Board
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- Meralco Power Generation, Philippines
- Salva Resources Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- TeaM Sual Corporation - Philippines
- Malabar Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Economic Council, Georgia
- Indian Oil Corporation Limited
- Pendopo Energi Batubara - Indonesia
- IEA Clean Coal Centre - UK
- Meenaskhi Energy Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Merrill Lynch Commodities Europe
- Petron Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Coalindo Energy - Indonesia
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Straits Asia Resources Limited - Singapore
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- PetroVietnam Power Coal Import and Supply Company
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Maheswari Brothers Coal Limited - India
- Therma Luzon, Inc, Philippines
- Altura Mining Limited, Indonesia
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Mercuria Energy - Indonesia
- CNBM International Corporation - China
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Madhucon Powers Ltd - India
- Bukit Baiduri Energy - Indonesia
- Minerals Council of Australia
- Indika Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Manunggal Multi Energi - Indonesia
- Marubeni Corporation - India
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- Independent Power Producers Association of India
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Semirara Mining Corp, Philippines
- Georgia Ports Authority, United States
- Medco Energi Mining Internasional
- The Treasury - Australian Government
- Latin American Coal - Colombia
- Attock Cement Pakistan Limited
- Tata Chemicals Ltd - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Ministry of Transport, Egypt
- The University of Queensland
- Lanco Infratech Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kapuas Tunggal Persada - Indonesia
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- ICICI Bank Limited - India
- Uttam Galva Steels Limited - India
- Renaissance Capital - South Africa
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
|
| |
| |
|
