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, 19 June 14
PANAMAX: VERY CLOSE TO BREAKING THE ALL TIME LOW RECORD - FEARNLEYS AS
Handy
The Supra-Handy market is experiencing the same market slow down as its bigger sister markets however not to the same extent. We see TA rat ...
Wednesday, 18 June 14
CHINESE STEEL PRODUCTION SETS RECORD DURING FIRST TEN DAYS OF JUNE - COMMODORE RESEARCH & CONSULTANCY
Recently released data shows that average daily crude steel production at China's key steel mills hit a record high of 1.833 million tons durin ...
Wednesday, 18 June 14
MARKET INSIGHT - TIMOS PAPADIMITRIOU
Back in January the expectations for Q3 and Q4 were more than great. Talks and claims for a rising BDI and a healthy market were coming from everyw ...
Tuesday, 17 June 14
DRY BULK FREIGHT RATES TO RISE DURING THE SECOND HALF OF 2014, AS CHINA IS EXPECTED TO START IMPORTING MORE IRON ORE FROM BRAZIL - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
In its latest analysis of the dry bulk market, BIMCO said that it doesn’t expect freight rates to react significantly to increased demand bef ...
Monday, 16 June 14
INDONESIAN COAL SWAPS FOR Q3 DELIVERY FALL 2.34 % MONTH ON MONTH
COALspot.com: Indonesian coal swaps for average Q3’ 2014 lost on day, week and on month according to AsiaClear OTC coal swap's reports re ...
|
|
|
Showing 3651 to 3655 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- McConnell Dowell - Australia
- Borneo Indobara - Indonesia
- Baramulti Group, Indonesia
- European Bulk Services B.V. - Netherlands
- Sinarmas Energy and Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- Bukit Baiduri Energy - Indonesia
- Malabar Cements Ltd - India
- CNBM International Corporation - China
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Mercator Lines Limited - India
- Power Finance Corporation Ltd., India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Star Paper Mills Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Coastal Gujarat Power Limited - India
- Vedanta Resources Plc - India
- San Jose City I Power Corp, Philippines
- Price Waterhouse Coopers - Russia
- Chettinad Cement Corporation Ltd - India
- Straits Asia Resources Limited - Singapore
- Minerals Council of Australia
- Bulk Trading Sa - Switzerland
- IEA Clean Coal Centre - UK
- Riau Bara Harum - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Eastern Energy - Thailand
- Deloitte Consulting - India
- Sarangani Energy Corporation, Philippines
- Parry Sugars Refinery, India
- Indo Tambangraya Megah - Indonesia
- Romanian Commodities Exchange
- Timah Investasi Mineral - Indoneisa
- Chamber of Mines of South Africa
- Edison Trading Spa - Italy
- Formosa Plastics Group - Taiwan
- Parliament of New Zealand
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Eastern Coal Council - USA
- Dalmia Cement Bharat India
- Mercuria Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Samtan Co., Ltd - South Korea
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- Sakthi Sugars Limited - India
- The State Trading Corporation of India Ltd
- Vizag Seaport Private Limited - India
- Trasteel International SA, Italy
- Tamil Nadu electricity Board
- Iligan Light & Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- Larsen & Toubro Limited - India
- Central Java Power - Indonesia
- Coalindo Energy - Indonesia
- Posco Energy - South Korea
- Simpson Spence & Young - Indonesia
- GAC Shipping (India) Pvt Ltd
- Oldendorff Carriers - Singapore
- Gujarat Sidhee Cement - India
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Sical Logistics Limited - India
- Medco Energi Mining Internasional
- Billiton Holdings Pty Ltd - Australia
- Kobexindo Tractors - Indoneisa
- Kumho Petrochemical, South Korea
- PetroVietnam Power Coal Import and Supply Company
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indika Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- IHS Mccloskey Coal Group - USA
- Krishnapatnam Port Company Ltd. - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Australian Coal Association
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Indonesian Coal Mining Association
- LBH Netherlands Bv - Netherlands
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Interocean Group of Companies - India
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- Grasim Industreis Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Energy Development Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- SMC Global Power, Philippines
- SN Aboitiz Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Goldman Sachs - Singapore
- Kaltim Prima Coal - Indonesia
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- Tata Chemicals Ltd - India
- SMG Consultants - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- Jaiprakash Power Ventures ltd
- Madhucon Powers Ltd - India
- Binh Thuan Hamico - Vietnam
- Wood Mackenzie - Singapore
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Mintek Dendrill Indonesia
- TeaM Sual Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Energy Link Ltd, New Zealand
- Agrawal Coal Company - India
- Thiess Contractors Indonesia
- Anglo American - United Kingdom
- Renaissance Capital - South Africa
- ASAPP Information Group - India
- White Energy Company Limited
- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- Carbofer General Trading SA - India
- Manunggal Multi Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Oil Corporation Limited
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Essar Steel Hazira Ltd - India
- Lanco Infratech Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Xindia Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Banpu Public Company Limited - Thailand
- Makarim & Taira - Indonesia
- ICICI Bank Limited - India
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Bhoruka Overseas - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sojitz Corporation - Japan
- Gujarat Mineral Development Corp Ltd - India
- Aditya Birla Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Globalindo Alam Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Miang Besar Coal Terminal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Africa Commodities Group - South Africa
- The University of Queensland
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- Planning Commission, India
- Port Waratah Coal Services - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Uttam Galva Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- Kideco Jaya Agung - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- London Commodity Brokers - England
- Merrill Lynch Commodities Europe
- Georgia Ports Authority, United States
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Indogreen Group - Indonesia
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- Singapore Mercantile Exchange
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Altura Mining Limited, Indonesia
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- GVK Power & Infra Limited - India
- Ministry of Transport, Egypt
- Antam Resourcindo - Indonesia
- Metalloyd Limited - United Kingdom
- Kepco SPC Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- PowerSource Philippines DevCo
- Semirara Mining Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
|
| |
| |
|
