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, 30 January 14
JPU SETTLEMENT PRICE AS A BENCHMARK WILL DECLINE IN IMPORTANCE BUT REMAIN RELEVANT, SAYS WOOD MACKENZIE
JPU price will remain above spot, trending closer to spot till 2015 then increasing to 2035.
Japanese Power Utilities (JPU) are approaching a cru ...
Thursday, 30 January 14
PANAMAX MARKET IS SOFTENING ON LESS ACTIVITY IN BOTH HEMISPHERES - FEARNRESEARCH
Handy
In the Atlantic rates have been slowly sliding but ows can still achieve decent money for TArv´s. USG positions still being fixed in re ...
Thursday, 30 January 14
TANKER PROFITABILITY IS THE 'MILLION-DOLLAR' QUESTION FOR SHIP OWNERS THIS YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The tanker market conditions are expected to remain challenging throughout the year for tanker owners, but even more pressing will be the issue of a ...
Tuesday, 28 January 14
GLOBAL COKING AND STEAM COAL PRODUCTION HAVE GROWN 2% TO 3% TO ABOUT 7.1 BILLION TONNES AS OF THE END OF 2013 - VDKI
COALspot.com (Press Release): Initial figures on the world hard coal market at the VDKi ((Association of Coal Importers - German) New Year’s R ...
Tuesday, 28 January 14
AUSTRALIAN NEWCASTLE PORT'S WEEKLY COAL EXPORTS JUMP 13.75% WEEK ON WEEK
COALspot.com: In the week ended 27 January 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled ...
|
|
|
Showing 3876 to 3880 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- The University of Queensland
- Therma Luzon, Inc, Philippines
- ICICI Bank Limited - India
- Agrawal Coal Company - India
- PTC India Limited - India
- International Coal Ventures Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Ambuja Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Xindia Steels Limited - India
- Electricity Generating Authority of Thailand
- Essar Steel Hazira Ltd - India
- Merrill Lynch Commodities Europe
- Indo Tambangraya Megah - Indonesia
- Antam Resourcindo - Indonesia
- CIMB Investment Bank - Malaysia
- Mercuria Energy - Indonesia
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jaiprakash Power Ventures ltd
- Attock Cement Pakistan Limited
- LBH Netherlands Bv - Netherlands
- Latin American Coal - Colombia
- Miang Besar Coal Terminal - Indonesia
- Eastern Energy - Thailand
- Electricity Authority, New Zealand
- Bhushan Steel Limited - India
- Indian Oil Corporation Limited
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Commonwealth Bank - Australia
- Interocean Group of Companies - India
- Bhatia International Limited - India
- Bharathi Cement Corporation - India
- Bulk Trading Sa - Switzerland
- Sree Jayajothi Cements Limited - India
- White Energy Company Limited
- Posco Energy - South Korea
- South Luzon Thermal Energy Corporation
- Grasim Industreis Ltd - India
- Makarim & Taira - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bayan Resources Tbk. - Indonesia
- Vizag Seaport Private Limited - India
- Iligan Light & Power Inc, Philippines
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- PowerSource Philippines DevCo
- Anglo American - United Kingdom
- Salva Resources Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Business Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Madhucon Powers Ltd - India
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- Pendopo Energi Batubara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Tamil Nadu electricity Board
- Vedanta Resources Plc - India
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- Ministry of Transport, Egypt
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Indogreen Group - Indonesia
- Orica Australia Pty. Ltd.
- Sarangani Energy Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Singapore Mercantile Exchange
- Sical Logistics Limited - India
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Eastern Coal Council - USA
- Romanian Commodities Exchange
- New Zealand Coal & Carbon
- IHS Mccloskey Coal Group - USA
- Price Waterhouse Coopers - Russia
- Orica Mining Services - Indonesia
- Energy Development Corp, Philippines
- Lanco Infratech Ltd - India
- Cement Manufacturers Association - India
- Bangladesh Power Developement Board
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- PNOC Exploration Corporation - Philippines
- Intertek Mineral Services - Indonesia
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Siam City Cement PLC, Thailand
- VISA Power Limited - India
- SMG Consultants - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Standard Chartered Bank - UAE
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Formosa Plastics Group - Taiwan
- London Commodity Brokers - England
- Aditya Birla Group - India
- Parliament of New Zealand
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Power Finance Corporation Ltd., India
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sinarmas Energy and Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Leighton Contractors Pty Ltd - Australia
- Sojitz Corporation - Japan
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- IEA Clean Coal Centre - UK
- Coastal Gujarat Power Limited - India
- Edison Trading Spa - Italy
- Uttam Galva Steels Limited - India
- Wood Mackenzie - Singapore
- Thai Mozambique Logistica
- Globalindo Alam Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- Binh Thuan Hamico - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- Bukit Baiduri Energy - Indonesia
- Wilmar Investment Holdings
- Independent Power Producers Association of India
- Petrochimia International Co. Ltd.- Taiwan
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Oldendorff Carriers - Singapore
- Videocon Industries ltd - India
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- PetroVietnam Power Coal Import and Supply Company
- Krishnapatnam Port Company Ltd. - India
- Metalloyd Limited - United Kingdom
- Meenaskhi Energy Private Limited - India
- Africa Commodities Group - South Africa
- Georgia Ports Authority, United States
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- San Jose City I Power Corp, Philippines
- The State Trading Corporation of India Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Kumho Petrochemical, South Korea
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
- Mercator Lines Limited - India
- Meralco Power Generation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Maheswari Brothers Coal Limited - India
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Economic Council, Georgia
- Deloitte Consulting - India
- Savvy Resources Ltd - HongKong
- Kepco SPC Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Kobexindo Tractors - Indoneisa
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- Simpson Spence & Young - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Marubeni Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- Siam City Cement - Thailand
- Ind-Barath Power Infra Limited - India
- Port Waratah Coal Services - Australia
- Billiton Holdings Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Medco Energi Mining Internasional
- Alfred C Toepfer International GmbH - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Global Green Power PLC Corporation, Philippines
|
| |
| |
|
