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.
|
|
Tuesday, 28 January 14
RESOURCE NATIONALISM OR PROTECTIONISM FOR THE MINING AND EXTRACTIVES INDUSTRY - JOHN WHITTAKER & MICHAEL SWANGARD
Resource nationalism or protectionism for the mining and extractives industry as well as soft commodities sector and the oil industry.
‘Res ...
Tuesday, 28 January 14
DRY BULK SHIP OWNERS RETREAT TO OLD 'HABITS', REFUSING TO DEMOLISH OLD VESSELS, THREATENING MARKET RECOVERY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
If one thing is clear as we reflect on the 2013 shipping markets, it's that ship owners took advantage of low prices, in order to acquire newer ton ...
Monday, 27 January 14
MERCATOR SINGAPORE REPORTS 52% INCREASE IN EBITDA FOR Q3 FY 2014 AS COMPARED TO PREVIOUS QUARTER
COALspot.com: Mercator Lines (Singapore) Limited, a leading Indian-owned international dry bulk shipping company that operates a fleet of fourteen d ...
Monday, 27 January 14
13TH CLEAN COAL FORUM 2014
COALspot.com: (Press Release) - Produced by CDMC Events, The 13th Clean Coal Forum 2014 will be held on June 12 &13 2014 in Beijing, China. We a ...
Monday, 27 January 14
Q3 & Q4 API 8 CFR SOUTH CHINA COAL SWAPS CONTINUE TO REMAIN WEAK
COALspot.com: API 8 CFR South China Coal swaps for average Q1 14 delivery lost 4.45 percent month on month and closed at US$ 79.05 per mt as on Frid ...
|
|
|
Showing 3881 to 3885 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Economic Council, Georgia
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Xindia Steels Limited - India
- MS Steel International - UAE
- Wood Mackenzie - Singapore
- Vedanta Resources Plc - India
- Indian Energy Exchange, India
- Romanian Commodities Exchange
- OPG Power Generation Pvt Ltd - India
- SMC Global Power, Philippines
- Parliament of New Zealand
- Attock Cement Pakistan Limited
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- McConnell Dowell - Australia
- Price Waterhouse Coopers - Russia
- Energy Link Ltd, New Zealand
- Heidelberg Cement - Germany
- Chettinad Cement Corporation Ltd - India
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- Karaikal Port Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- Pendopo Energi Batubara - Indonesia
- Power Finance Corporation Ltd., India
- Georgia Ports Authority, United States
- Coal and Oil Company - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Carbofer General Trading SA - India
- Jindal Steel & Power Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Toyota Tsusho Corporation, Japan
- Ind-Barath Power Infra Limited - India
- Metalloyd Limited - United Kingdom
- Deloitte Consulting - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Edison Trading Spa - Italy
- Eastern Energy - Thailand
- Sinarmas Energy and Mining - Indonesia
- Anglo American - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Gujarat Sidhee Cement - India
- Malabar Cements Ltd - India
- Altura Mining Limited, Indonesia
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Timah Investasi Mineral - Indoneisa
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Kepco SPC Power Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- San Jose City I Power Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Standard Chartered Bank - UAE
- PTC India Limited - India
- Lanco Infratech Ltd - India
- Africa Commodities Group - South Africa
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Planning Commission, India
- Posco Energy - South Korea
- Sakthi Sugars Limited - India
- Ceylon Electricity Board - Sri Lanka
- Aditya Birla Group - India
- Trasteel International SA, Italy
- Leighton Contractors Pty Ltd - Australia
- Electricity Authority, New Zealand
- Semirara Mining Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- CIMB Investment Bank - Malaysia
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Port Waratah Coal Services - Australia
- Renaissance Capital - South Africa
- AsiaOL BioFuels Corp., Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Bulk Trading Sa - Switzerland
- CNBM International Corporation - China
- Bhatia International Limited - India
- Global Coal Blending Company Limited - Australia
- Global Business Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- European Bulk Services B.V. - Netherlands
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- Makarim & Taira - Indonesia
- Indika Energy - Indonesia
- Minerals Council of Australia
- Kalimantan Lumbung Energi - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- IEA Clean Coal Centre - UK
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bharathi Cement Corporation - India
- Energy Development Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- London Commodity Brokers - England
- Agrawal Coal Company - India
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Marubeni Corporation - India
- Siam City Cement - Thailand
- PowerSource Philippines DevCo
- Orica Mining Services - Indonesia
- Kumho Petrochemical, South Korea
- Globalindo Alam Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Central Electricity Authority - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate Of Revenue Intelligence - India
- Merrill Lynch Commodities Europe
- GMR Energy Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Medco Energi Mining Internasional
- Savvy Resources Ltd - HongKong
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Coastal Gujarat Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Mercator Lines Limited - India
- Independent Power Producers Association of India
- Australian Commodity Traders Exchange
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- Vizag Seaport Private Limited - India
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- LBH Netherlands Bv - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Miang Besar Coal Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- Madhucon Powers Ltd - India
- Tata Chemicals Ltd - India
- Bhushan Steel Limited - India
- Interocean Group of Companies - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Oldendorff Carriers - Singapore
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- Electricity Generating Authority of Thailand
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Banpu Public Company Limited - Thailand
- Antam Resourcindo - Indonesia
- Bangladesh Power Developement Board
- Jorong Barutama Greston.PT - Indonesia
- Jaiprakash Power Ventures ltd
- India Bulls Power Limited - India
- Rio Tinto Coal - Australia
- GN Power Mariveles Coal Plant, Philippines
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- ASAPP Information Group - India
- Sindya Power Generating Company Private Ltd
- Sojitz Corporation - Japan
- Commonwealth Bank - Australia
- Meralco Power Generation, Philippines
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- Australian Coal Association
|
| |
| |
|
