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, 18 December 13
DEMOLITION ACTIVITY SCALED BACK AS FREIGHT RATES RISE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
It's always been the case that each time we witness a spike in freight rates, demolition activity is decreasing, as owners are looking for more car ...
Tuesday, 17 December 13
NEWCASTLE COAL EXPORTS UP 37.83% WEEK ON WEEK
COALspot.com: In the week ended December 16, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled 3.45 ...
Monday, 16 December 13
SUB-BIT FOB INDONESIA COAL SWAP LOST $ 0.53 IN A WEEK
COALspot.com – Sub-Bit Indonesia coal swap (FOB) for average Q1’ 14 delivery gained $ 0.91 pmt month on month on Friday 13 December 2013 ...
Monday, 16 December 13
API 8 CFR SOUTH CHINA COAL Q3' 14 DELIVERY PRICE CLOSED $1.63 LESSER THAN Q1' 14 PRICE
COALspot.com : API 8 CFR South China Coal swaps for average Q1’ 14 delivery gained 5.34 percept month on month as on Friday 13 December 2013. ...
Sunday, 15 December 13
SUPRAMAX'S FREIGHT RALLY COMES TO AN END THIS WEEK
COALspot.com: The BDI was up by 7 pct closing at 2,330 points week on week and the cape index was also up by 10.51 points and closed at 4,246 points ...
|
|
|
Showing 3951 to 3955 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Chettinad Cement Corporation Ltd - India
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- Commonwealth Bank - Australia
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- Banpu Public Company Limited - Thailand
- Electricity Generating Authority of Thailand
- Eastern Energy - Thailand
- Interocean Group of Companies - India
- Thiess Contractors Indonesia
- IHS Mccloskey Coal Group - USA
- South Luzon Thermal Energy Corporation
- Georgia Ports Authority, United States
- Uttam Galva Steels Limited - India
- Heidelberg Cement - Germany
- Parliament of New Zealand
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Miang Besar Coal Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Xindia Steels Limited - India
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- Sinarmas Energy and Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Coal and Oil Company - UAE
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Eastern Coal Council - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Orica Mining Services - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Central Java Power - Indonesia
- Indo Tambangraya Megah - Indonesia
- PTC India Limited - India
- Bangladesh Power Developement Board
- Indian Oil Corporation Limited
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- Makarim & Taira - Indonesia
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- Deloitte Consulting - India
- Rio Tinto Coal - Australia
- Savvy Resources Ltd - HongKong
- Jindal Steel & Power Ltd - India
- Straits Asia Resources Limited - Singapore
- Videocon Industries ltd - India
- Wilmar Investment Holdings
- Larsen & Toubro Limited - India
- Madhucon Powers Ltd - India
- Baramulti Group, Indonesia
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- India Bulls Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aditya Birla Group - India
- Indian Energy Exchange, India
- Ministry of Finance - Indonesia
- ASAPP Information Group - India
- Bhushan Steel Limited - India
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Independent Power Producers Association of India
- Energy Development Corp, Philippines
- Metalloyd Limited - United Kingdom
- Thai Mozambique Logistica
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Global Business Power Corporation, Philippines
- London Commodity Brokers - England
- Meralco Power Generation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- McConnell Dowell - Australia
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Timah Investasi Mineral - Indoneisa
- VISA Power Limited - India
- Mintek Dendrill Indonesia
- Rashtriya Ispat Nigam Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Economic Council, Georgia
- Jorong Barutama Greston.PT - Indonesia
- Australian Commodity Traders Exchange
- Power Finance Corporation Ltd., India
- The University of Queensland
- Bahari Cakrawala Sebuku - Indonesia
- Sarangani Energy Corporation, Philippines
- Star Paper Mills Limited - India
- Coalindo Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Trasteel International SA, Italy
- White Energy Company Limited
- GVK Power & Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Ministry of Mines - Canada
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Directorate Of Revenue Intelligence - India
- Kapuas Tunggal Persada - Indonesia
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Aboitiz Power Corporation - Philippines
- Edison Trading Spa - Italy
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- Billiton Holdings Pty Ltd - Australia
- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Kideco Jaya Agung - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Mercator Lines Limited - India
- Antam Resourcindo - Indonesia
- ICICI Bank Limited - India
- Malabar Cements Ltd - India
- Central Electricity Authority - India
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Vedanta Resources Plc - India
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Barasentosa Lestari - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Petron Corporation, Philippines
- GMR Energy Limited - India
- Cigading International Bulk Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Price Waterhouse Coopers - Russia
- CIMB Investment Bank - Malaysia
- MS Steel International - UAE
- Grasim Industreis Ltd - India
- Riau Bara Harum - Indonesia
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- SMC Global Power, Philippines
- Kartika Selabumi Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Oldendorff Carriers - Singapore
- Siam City Cement - Thailand
- Mercuria Energy - Indonesia
- Australian Coal Association
- Wood Mackenzie - Singapore
- Posco Energy - South Korea
- Karaikal Port Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Manunggal Multi Energi - Indonesia
- Renaissance Capital - South Africa
- Bhatia International Limited - India
- Meenaskhi Energy Private Limited - India
- IEA Clean Coal Centre - UK
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Orica Australia Pty. Ltd.
- Lanco Infratech Ltd - India
- Ambuja Cements Ltd - India
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Toyota Tsusho Corporation, Japan
- TeaM Sual Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Ministry of Transport, Egypt
- Semirara Mining and Power Corporation, Philippines
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- Electricity Authority, New Zealand
- LBH Netherlands Bv - Netherlands
- The State Trading Corporation of India Ltd
- Neyveli Lignite Corporation Ltd, - India
- Goldman Sachs - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- International Coal Ventures Pvt Ltd - India
|
| |
| |
|
