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, 09 July 14
PANAMAX MARKET FINALLY CORRECTING UPWARDS; AVERAGE TC MORE THAN DOUBLING WEEK ON WEEK - INTERMODAL
The Dry Bulk market has closed off on Friday on a more positive note, with most segments noting weekly gains and the Panamax market finally correct ...
Wednesday, 09 July 14
SHIPPING MARKET INSIGHT - PANOS TSILINGIRIS
The mini-boom in dry bulker values catapulted ship prices too fast too far over the last one-and-a-half year. The concurrence of historically low p ...
Tuesday, 08 July 14
INDONESIAN COAL PRICE REFERENCE FALL AGAIN IN JULY; LOST 1.62%
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia again revised down the coal bench mark price in July. HBA for month of J ...
Tuesday, 08 July 14
ENERGY IN THE MIX - INTERMODAL SHIPBROKERS
With the Tanker freight market having showed much promise this year compared to the performance that had been noted during the previous five, it is ...
Monday, 07 July 14
INDONESIA STATE-CONTROLLED COAL MINER BUKIT ASAM TO TRADE COAL ON-LINE THROUGH JFX
COALspot.com: Indonesian state owned coal miner PT Tambang Batubara Bukit Asam Tbk (PTBA) has teamed up with Jakarta Futures Exchange (JFX) to sell ...
|
|
|
Showing 3616 to 3620 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Kumho Petrochemical, South Korea
- Orica Australia Pty. Ltd.
- Karbindo Abesyapradhi - Indoneisa
- Africa Commodities Group - South Africa
- Meralco Power Generation, Philippines
- Bharathi Cement Corporation - India
- Videocon Industries ltd - India
- Meenaskhi Energy Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Standard Chartered Bank - UAE
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coal and Oil Company - UAE
- Coastal Gujarat Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Port Waratah Coal Services - Australia
- Rashtriya Ispat Nigam Limited - India
- Mintek Dendrill Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Attock Cement Pakistan Limited
- Chamber of Mines of South Africa
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Trasteel International SA, Italy
- Commonwealth Bank - Australia
- Energy Development Corp, Philippines
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Parliament of New Zealand
- Aditya Birla Group - India
- Neyveli Lignite Corporation Ltd, - India
- Cement Manufacturers Association - India
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Minerals Council of Australia
- Baramulti Group, Indonesia
- Electricity Authority, New Zealand
- LBH Netherlands Bv - Netherlands
- International Coal Ventures Pvt Ltd - India
- New Zealand Coal & Carbon
- Bhushan Steel Limited - India
- Ambuja Cements Ltd - India
- Orica Mining Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Global Coal Blending Company Limited - Australia
- Eastern Coal Council - USA
- The State Trading Corporation of India Ltd
- Rio Tinto Coal - Australia
- SMC Global Power, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Power Finance Corporation Ltd., India
- Directorate General of MIneral and Coal - Indonesia
- Global Business Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- San Jose City I Power Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Ministry of Finance - Indonesia
- Antam Resourcindo - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Formosa Plastics Group - Taiwan
- Simpson Spence & Young - Indonesia
- Posco Energy - South Korea
- Bhatia International Limited - India
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Economic Council, Georgia
- Ceylon Electricity Board - Sri Lanka
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Sakthi Sugars Limited - India
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Romanian Commodities Exchange
- Binh Thuan Hamico - Vietnam
- GAC Shipping (India) Pvt Ltd
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- ICICI Bank Limited - India
- GMR Energy Limited - India
- Tamil Nadu electricity Board
- Holcim Trading Pte Ltd - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Planning Commission, India
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- Interocean Group of Companies - India
- Latin American Coal - Colombia
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- PowerSource Philippines DevCo
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- The Treasury - Australian Government
- Kartika Selabumi Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Merrill Lynch Commodities Europe
- Siam City Cement - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Xindia Steels Limited - India
- Tata Chemicals Ltd - India
- Aboitiz Power Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- SN Aboitiz Power Inc, Philippines
- Thiess Contractors Indonesia
- Grasim Industreis Ltd - India
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Thai Mozambique Logistica
- AsiaOL BioFuels Corp., Philippines
- TeaM Sual Corporation - Philippines
- India Bulls Power Limited - India
- White Energy Company Limited
- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Directorate Of Revenue Intelligence - India
- Australian Coal Association
- Ministry of Mines - Canada
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Petron Corporation, Philippines
- CNBM International Corporation - China
- Indian Energy Exchange, India
- Krishnapatnam Port Company Ltd. - India
- Intertek Mineral Services - Indonesia
- Eastern Energy - Thailand
- Ind-Barath Power Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Kaltim Prima Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Agrawal Coal Company - India
- GVK Power & Infra Limited - India
- Anglo American - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Alfred C Toepfer International GmbH - Germany
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- MS Steel International - UAE
- Gujarat Sidhee Cement - India
- GN Power Mariveles Coal Plant, Philippines
- Bulk Trading Sa - Switzerland
- Manunggal Multi Energi - Indonesia
- Indo Tambangraya Megah - Indonesia
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kapuas Tunggal Persada - Indonesia
- South Luzon Thermal Energy Corporation
- Coalindo Energy - Indonesia
- Electricity Generating Authority of Thailand
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Lanco Infratech Ltd - India
- Sojitz Corporation - Japan
- Wood Mackenzie - Singapore
- Vizag Seaport Private Limited - India
- Malabar Cements Ltd - India
- Siam City Cement PLC, Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Renaissance Capital - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Karaikal Port Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Salva Resources Pvt Ltd - India
- Medco Energi Mining Internasional
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- Altura Mining Limited, Indonesia
- Mercator Lines Limited - India
- Timah Investasi Mineral - Indoneisa
- Larsen & Toubro Limited - India
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Indonesian Coal Mining Association
- Asmin Koalindo Tuhup - Indonesia
- Madhucon Powers Ltd - India
- SMG Consultants - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Transport, Egypt
- Billiton Holdings Pty Ltd - Australia
- The University of Queensland
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- McConnell Dowell - Australia
- Miang Besar Coal Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kepco SPC Power Corporation, Philippines
- Uttam Galva Steels Limited - India
|
| |
| |
|
