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.
|
|
Saturday, 11 September 21
CIL STEPS UP SUPPLY COAL TO POWER SECTOR; PER-DAY AVERAGE 20 PC HIGHER THAN LAST YEAR - PTI
State-owned CIL on Friday said it has stepped up the supply of coal to the power sector in the first eight days of the current month, with an avera ...
Saturday, 11 September 21
RECORD CHINESE COAL FUTURES SIGNAL NEED TO BOOST OUTPUT - REUTERS
China’s coal prices have climbed to a record high, signaling the need for more production in the short term, even as the government tries to ...
Saturday, 11 September 21
IN 2022, EIA EXPECTS U.S. COAL PRODUCTION TO INCREASE BY 47 MMST TO 648 MMST
U.S. Coal production accordng to EIA's forecast, totals 601 million short tons (MMst) in 2021, 66 MMst more than in 2020, EIA's Short-Term ...
Wednesday, 08 September 21
FITCH RATINGS RAISES THERMAL COAL PRICE ASSUMPTIONS ON TIGHT SUPPLY
Fitch Ratings has increased all its Qinhuangdao 5,500kcal/kg price assumptions and short- and medium-term Newcastle 6,000kcal/kg price assumptions ...
Wednesday, 08 September 21
COAL IS STILL KING; INDONESIAN COAL PRICE REFERENCE ABOVE $150 FOR FIRST TIME IN HISTORY
COALspot.com: The Indonesian Coal Price Reference rose dramatically from US$ 127.05 in February 2011, to a peak of US$ 150.03 in September 2021, be ...
|
|
|
Showing 486 to 490 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Simpson Spence & Young - Indonesia
- Ind-Barath Power Infra Limited - India
- Interocean Group of Companies - India
- Karaikal Port Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Eastern Energy - Thailand
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Videocon Industries ltd - India
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- IHS Mccloskey Coal Group - USA
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- ICICI Bank Limited - India
- GMR Energy Limited - India
- Mercator Lines Limited - India
- Trasteel International SA, Italy
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Bhatia International Limited - India
- The State Trading Corporation of India Ltd
- Samtan Co., Ltd - South Korea
- Bukit Makmur.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Intertek Mineral Services - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Attock Cement Pakistan Limited
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Toyota Tsusho Corporation, Japan
- Coalindo Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kideco Jaya Agung - Indonesia
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- Krishnapatnam Port Company Ltd. - India
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Semirara Mining Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Aboitiz Power Corporation - Philippines
- Georgia Ports Authority, United States
- Alfred C Toepfer International GmbH - Germany
- Gujarat Mineral Development Corp Ltd - India
- Kepco SPC Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- Savvy Resources Ltd - HongKong
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Merrill Lynch Commodities Europe
- Holcim Trading Pte Ltd - Singapore
- Directorate Of Revenue Intelligence - India
- Meralco Power Generation, Philippines
- Carbofer General Trading SA - India
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- Siam City Cement - Thailand
- European Bulk Services B.V. - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Port Waratah Coal Services - Australia
- The University of Queensland
- PowerSource Philippines DevCo
- Siam City Cement PLC, Thailand
- Cigading International Bulk Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Coal and Oil Company - UAE
- Parliament of New Zealand
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- Global Coal Blending Company Limited - Australia
- GVK Power & Infra Limited - India
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- Indian Energy Exchange, India
- Aditya Birla Group - India
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chamber of Mines of South Africa
- Makarim & Taira - Indonesia
- Renaissance Capital - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Bharathi Cement Corporation - India
- Borneo Indobara - Indonesia
- Coastal Gujarat Power Limited - India
- Ministry of Finance - Indonesia
- Ministry of Mines - Canada
- Tata Chemicals Ltd - India
- Bulk Trading Sa - Switzerland
- Antam Resourcindo - Indonesia
- Marubeni Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Riau Bara Harum - Indonesia
- SMC Global Power, Philippines
- AsiaOL BioFuels Corp., Philippines
- Sindya Power Generating Company Private Ltd
- Altura Mining Limited, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- Essar Steel Hazira Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Jindal Steel & Power Ltd - India
- Straits Asia Resources Limited - Singapore
- Oldendorff Carriers - Singapore
- Agrawal Coal Company - India
- McConnell Dowell - Australia
- Kartika Selabumi Mining - Indonesia
- Africa Commodities Group - South Africa
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- Sical Logistics Limited - India
- Gujarat Sidhee Cement - India
- London Commodity Brokers - England
- Kaltim Prima Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Binh Thuan Hamico - Vietnam
- ASAPP Information Group - India
- International Coal Ventures Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Star Paper Mills Limited - India
- Wilmar Investment Holdings
- Bukit Baiduri Energy - Indonesia
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Orica Australia Pty. Ltd.
- Jaiprakash Power Ventures ltd
- Karbindo Abesyapradhi - Indoneisa
- New Zealand Coal & Carbon
- Planning Commission, India
- Cement Manufacturers Association - India
- Indonesian Coal Mining Association
- Sarangani Energy Corporation, Philippines
- India Bulls Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Edison Trading Spa - Italy
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- Neyveli Lignite Corporation Ltd, - India
- Parry Sugars Refinery, India
- Madhucon Powers Ltd - India
- Vizag Seaport Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Wood Mackenzie - Singapore
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- CIMB Investment Bank - Malaysia
- Central Java Power - Indonesia
- Global Green Power PLC Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Electricity Generating Authority of Thailand
- Globalindo Alam Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Billiton Holdings Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Singapore Mercantile Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Heidelberg Cement - Germany
- Grasim Industreis Ltd - India
- Minerals Council of Australia
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- Economic Council, Georgia
- Indian Oil Corporation Limited
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Petron Corporation, Philippines
- VISA Power Limited - India
- Orica Mining Services - Indonesia
- PTC India Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- Miang Besar Coal Terminal - Indonesia
|
| |
| |
|
