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.
|
|
Friday, 08 June 12
MINISTER DENIES COAL EXPORT TAX PLAN, ENDORSES RESTRICTIONS - THE JAKARTA POST
The Jakarta post, one of the leading english news paper in Indonesia reported that, Energy and Mineral Resources Minister Jero Wacik has denied that ...
Friday, 08 June 12
NO IMMEDIATE IMPACT ON ADARO'S RATING FROM BEP TRANSACTION - FITCH RATINGS
Fitch Ratings has said that PT Adaro Indonesia's (Adaro, 'BB+'/ Stable) ratings are not immediately affected by its parent PT Adaro Energy Tbk's ...
Thursday, 07 June 12
DRY BULK MARKET FALLS FOR 10 STRAIGHT SESSION ON OVERSUPPLY PROBLEMS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A resurgence of oversupply, coupled with national holidays in various parts of the world has contributed to yet another fall of the dry bulk market ...
Thursday, 07 June 12
COAL EXPORT TAX NOT RATIONAL: MINISTER - THE JAKARTA POST
Trade Minister Gita Wirjawan has criticized as irrational the idea to restrict coal exports by imposing an export tax, According to The Jakarta post ...
Thursday, 07 June 12
BY 2022 PLN IS EXPECTED TO BURN AROUND 125 MILLION TONS OF COAL
COALspot.com - Indonesia's state owned electricity company's (PLN) coal consumption is expected to reach 125.7 million tons by 2012.
Nur Pamudj ...
|
|
|
Showing 4701 to 4705 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- PTC India Limited - India
- Trasteel International SA, Italy
- Carbofer General Trading SA - India
- Global Coal Blending Company Limited - Australia
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Eastern Energy - Thailand
- Power Finance Corporation Ltd., India
- Neyveli Lignite Corporation Ltd, - India
- VISA Power Limited - India
- Rio Tinto Coal - Australia
- Ceylon Electricity Board - Sri Lanka
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Energy Development Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Kartika Selabumi Mining - Indonesia
- PowerSource Philippines DevCo
- Cement Manufacturers Association - India
- South Luzon Thermal Energy Corporation
- Edison Trading Spa - Italy
- Vizag Seaport Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- CNBM International Corporation - China
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Australian Coal Association
- Barasentosa Lestari - Indonesia
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Banpu Public Company Limited - Thailand
- Central Java Power - Indonesia
- Kumho Petrochemical, South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Deloitte Consulting - India
- Sindya Power Generating Company Private Ltd
- Directorate General of MIneral and Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Binh Thuan Hamico - Vietnam
- Africa Commodities Group - South Africa
- Marubeni Corporation - India
- Xindia Steels Limited - India
- Energy Link Ltd, New Zealand
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- White Energy Company Limited
- Ambuja Cements Ltd - India
- ASAPP Information Group - India
- Gujarat Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Latin American Coal - Colombia
- Sinarmas Energy and Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Merrill Lynch Commodities Europe
- Indogreen Group - Indonesia
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- Intertek Mineral Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Orica Australia Pty. Ltd.
- Posco Energy - South Korea
- Simpson Spence & Young - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- GVK Power & Infra Limited - India
- Global Business Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement PLC, Thailand
- The State Trading Corporation of India Ltd
- Therma Luzon, Inc, Philippines
- Renaissance Capital - South Africa
- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Sojitz Corporation - Japan
- Kepco SPC Power Corporation, Philippines
- Commonwealth Bank - Australia
- Kohat Cement Company Ltd. - Pakistan
- Standard Chartered Bank - UAE
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- GMR Energy Limited - India
- Bharathi Cement Corporation - India
- Bhatia International Limited - India
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- MS Steel International - UAE
- Eastern Coal Council - USA
- Riau Bara Harum - Indonesia
- Independent Power Producers Association of India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Karaikal Port Pvt Ltd - India
- Petron Corporation, Philippines
- Indian Energy Exchange, India
- SMG Consultants - Indonesia
- Mercator Lines Limited - India
- Coastal Gujarat Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Chamber of Mines of South Africa
- Heidelberg Cement - Germany
- OPG Power Generation Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- McConnell Dowell - Australia
- Krishnapatnam Port Company Ltd. - India
- Salva Resources Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Gujarat Sidhee Cement - India
- TeaM Sual Corporation - Philippines
- Coal and Oil Company - UAE
- Australian Commodity Traders Exchange
- Ministry of Transport, Egypt
- Bahari Cakrawala Sebuku - Indonesia
- Lanco Infratech Ltd - India
- Aboitiz Power Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Parry Sugars Refinery, India
- Global Green Power PLC Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Wood Mackenzie - Singapore
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Thai Mozambique Logistica
- Siam City Cement - Thailand
- Kalimantan Lumbung Energi - Indonesia
- The University of Queensland
- Bhushan Steel Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Samtan Co., Ltd - South Korea
- Toyota Tsusho Corporation, Japan
- Orica Mining Services - Indonesia
- Oldendorff Carriers - Singapore
- Star Paper Mills Limited - India
- Aditya Birla Group - India
- Ministry of Finance - Indonesia
- Globalindo Alam Lestari - Indonesia
- Meralco Power Generation, Philippines
- Videocon Industries ltd - India
- Agrawal Coal Company - India
- Holcim Trading Pte Ltd - Singapore
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- GAC Shipping (India) Pvt Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Medco Energi Mining Internasional
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mintek Dendrill Indonesia
- India Bulls Power Limited - India
- Bukit Baiduri Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- Antam Resourcindo - Indonesia
- Wilmar Investment Holdings
- Metalloyd Limited - United Kingdom
- Indian Oil Corporation Limited
- Jindal Steel & Power Ltd - India
- New Zealand Coal & Carbon
- IHS Mccloskey Coal Group - USA
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- Borneo Indobara - Indonesia
- Manunggal Multi Energi - Indonesia
- Romanian Commodities Exchange
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kaltim Prima Coal - Indonesia
- London Commodity Brokers - England
- Sarangani Energy Corporation, Philippines
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- ICICI Bank Limited - India
- Alfred C Toepfer International GmbH - Germany
- Iligan Light & Power Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Bangladesh Power Developement Board
- PNOC Exploration Corporation - Philippines
- SMC Global Power, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Minerals Council of Australia
- Port Waratah Coal Services - Australia
- IEA Clean Coal Centre - UK
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
|
| |
| |
|
