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Thursday, 03 December 09
INDONESIA MAY ALLOW COAL SALES BELOW GOVT PRICE


Reuters reported that, Indonesia is considering giving producers some flexibility to sell coal below the government's monthly benchmark price to cope with competition in export markets, a government official said on Wednesday.

The government has previously said it would set up its own monthly coal price benchmark in order to reduce the practice of transfer pricing and reduce losses to the state.

Under transfer pricing, some Indonesian coal firms sell coal to affiliates in countries such as Singapore at artificially low prices in order to avoid paying hefty taxes.

Bambang Gatot Ariyono, director of mineral and coal production at the energy ministry, said producers were concerned that they might not win overseas tenders if they always have to sell above the benchmark price.

"There's concerns from producers that competitors may bid slightly lower than our benchmark prices to win overseas tenders because they know we can't sell below the benchmark," Ariyono, director said on the sidelines of the McCloskey Asia Pacific Coal Outlook Conference 2009 in Bali.

"So we discussed a proposal to give flexibility to producers to sell coal below a benchmark price to anticipate competition in export markets," he said.

But implementation of the government's coal index is still awaiting completion of regulations under a new mining and coal law passed in December, which are facing delays.

The index will be made up of prices of 8 types of coal, ranging from 7,000 kcal/kg to 4,200 kcal/kg on gross as-received (GAR) basis.

Supriatna Suhala, executive director of the Indonesian Coal Producers Association, said producers needed the flexibility to set coal prices especially when selling low-quality coal.

"We have to give discounts for certain type of coal that are low quality such as having high moisture or sulphur content so that we can sell," Suhala said.

Indonesia, the world's biggest exporter of thermal coal, is expected to produce 270-280 million tonnes of coal next year, the association has said.

Even if selling below the government's benchmark price, producers would have to pay non-income taxes including royalties based on the benchmark price, Ariyono said, adding the plan was still being discussed between with producers.
Source: Reuters



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