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, 12 June 13
INDONESIAN COAL PRICE REFERENCE SLIDES TO 2013 LOW
COALspot.com - Indonesian Coal Price Reference continues to take its lumps this month, dropping about 0.54 % and hitting a 2013 low. The Indonesian ...
Tuesday, 11 June 13
COAL: NO SIGN OF RECOVERY - GABRIELLA
COALspot.com: We attended the 19th Annual Coaltrans Asia Conference, where we found most of the speakers were not very optimistic on the outlook for ...
Tuesday, 11 June 13
NEWCASTLE PORT SHIPPED MORE COAL WEEK ENDED 11 JUNE 2013
COALspot.com - Newcastle port in Australia has loaded 3,104,509 tons of coal for the week ended 0700 hours 11 June 2013, Newcastle Port Corp. ...
Tuesday, 11 June 13
OUTLOOK FOR CAPESIZES LOOKS GRIM, DESPITE FALLING IRON ORE PRICES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Things aren't looking all that rosy for the dry bulk market, despite a stronger volume of iron ore imports during the months of March and April, as ...
Sunday, 09 June 13
CFR SOUTH CHINA COAL SWAP IS UNDER PRESSURE
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average July 2013 delivery have lost 0.03 percent week on week but gained 0.07 pe ...
|
|
|
Showing 4251 to 4255 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Vijayanagar Sugar Pvt Ltd - India
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- Energy Link Ltd, New Zealand
- Gujarat Sidhee Cement - India
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Deloitte Consulting - India
- PTC India Limited - India
- Straits Asia Resources Limited - Singapore
- Karaikal Port Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- Electricity Authority, New Zealand
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Coastal Gujarat Power Limited - India
- Binh Thuan Hamico - Vietnam
- Power Finance Corporation Ltd., India
- Iligan Light & Power Inc, Philippines
- Carbofer General Trading SA - India
- Kalimantan Lumbung Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- CIMB Investment Bank - Malaysia
- Riau Bara Harum - Indonesia
- European Bulk Services B.V. - Netherlands
- SN Aboitiz Power Inc, Philippines
- Petron Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indonesian Coal Mining Association
- Siam City Cement PLC, Thailand
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- Xindia Steels Limited - India
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- Marubeni Corporation - India
- Maharashtra Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Star Paper Mills Limited - India
- Sojitz Corporation - Japan
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- Australian Coal Association
- PowerSource Philippines DevCo
- Energy Development Corp, Philippines
- Central Electricity Authority - India
- Alfred C Toepfer International GmbH - Germany
- Thiess Contractors Indonesia
- Global Coal Blending Company Limited - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Billiton Holdings Pty Ltd - Australia
- India Bulls Power Limited - India
- Kobexindo Tractors - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- Trasteel International SA, Italy
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Banpu Public Company Limited - Thailand
- International Coal Ventures Pvt Ltd - India
- Edison Trading Spa - Italy
- Oldendorff Carriers - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Anglo American - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Maheswari Brothers Coal Limited - India
- The University of Queensland
- Kapuas Tunggal Persada - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Cement Manufacturers Association - India
- Malabar Cements Ltd - India
- Grasim Industreis Ltd - India
- Ministry of Finance - Indonesia
- Holcim Trading Pte Ltd - Singapore
- White Energy Company Limited
- Bukit Baiduri Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- ASAPP Information Group - India
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- Mintek Dendrill Indonesia
- Bhatia International Limited - India
- Singapore Mercantile Exchange
- Global Business Power Corporation, Philippines
- Vedanta Resources Plc - India
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- Kartika Selabumi Mining - Indonesia
- Uttam Galva Steels Limited - India
- Agrawal Coal Company - India
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- Sindya Power Generating Company Private Ltd
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Parry Sugars Refinery, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aditya Birla Group - India
- Coalindo Energy - Indonesia
- Commonwealth Bank - Australia
- Miang Besar Coal Terminal - Indonesia
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Planning Commission, India
- Indika Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Jorong Barutama Greston.PT - Indonesia
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate Of Revenue Intelligence - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Medco Energi Mining Internasional
- Electricity Generating Authority of Thailand
- Central Java Power - Indonesia
- Goldman Sachs - Singapore
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- Samtan Co., Ltd - South Korea
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- Therma Luzon, Inc, Philippines
- Savvy Resources Ltd - HongKong
- Bukit Makmur.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- VISA Power Limited - India
- ICICI Bank Limited - India
- Bangladesh Power Developement Board
- Rashtriya Ispat Nigam Limited - India
- Semirara Mining Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Indian Energy Exchange, India
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Borneo Indobara - Indonesia
- MS Steel International - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- IEA Clean Coal Centre - UK
- Krishnapatnam Port Company Ltd. - India
- London Commodity Brokers - England
- Tamil Nadu electricity Board
- Bahari Cakrawala Sebuku - Indonesia
- Sakthi Sugars Limited - India
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Videocon Industries ltd - India
- McConnell Dowell - Australia
- Africa Commodities Group - South Africa
- AsiaOL BioFuels Corp., Philippines
- Aboitiz Power Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Bhushan Steel Limited - India
- GMR Energy Limited - India
- Heidelberg Cement - Germany
- Dalmia Cement Bharat India
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Indian Oil Corporation Limited
- Manunggal Multi Energi - Indonesia
- Economic Council, Georgia
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Australian Commodity Traders Exchange
- GAC Shipping (India) Pvt Ltd
- Makarim & Taira - Indonesia
- Kumho Petrochemical, South Korea
- Metalloyd Limited - United Kingdom
- Sarangani Energy Corporation, Philippines
- Minerals Council of Australia
- Mercator Lines Limited - India
- Gujarat Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Formosa Plastics Group - Taiwan
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- Wilmar Investment Holdings
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Merrill Lynch Commodities Europe
- Georgia Ports Authority, United States
- Asia Pacific Energy Resources Ventures Inc, Philippines
- San Jose City I Power Corp, Philippines
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement - Thailand
- GN Power Mariveles Coal Plant, Philippines
|
| |
| |
|
