Govt to regulate minimum
coal selling prices

To complement the recent enactment of the new mining law, the government is preparing to introduce a coal pricing index which will set the minimum selling prices required for producers.

Energy and Mineral Resources Ministry Purnomo Yusgiantoro said Tuesday that a government team was working out how to formulate the index which will be used as the coal prices benchmark.

"With this index, we can see from year to year the optimal revenue for the government based on the coal volume we produce," said Purnomo, when he opened the 3rd Australian Mining Exhibition and Conference (OZMINE 2009).

More than eighty Australian mining companies participated in OZMINE lasting until Wednesday.

Purnomo said the government regulations on the coal pricing index will be part of the derivative regulations under the Law No. 4/2009 on coal and mining.

He added the index will refer to several existing coal price indexes, including Argus's Indonesian Coal Index (ICI), Barlow Jonker's index and the Global index..

Bambang Setiawan, director general of coal, mineral, and geothermal at the ministry, said the index will be launched monthly and will be based on the lowest coal selling prices.

"Coal producers cannot sell lower than the index.

"That would be good if they could sell higher than the index," said Bambang, adding that coal selling prices were likely to vary depending on the calorific values of coal and the concession location.

Bambang said the index was made to help secure the anount of state revenue from coal.

"The index will avoid the transfer pricing practice," Bambang said.

In an earlier seminar in November last year, Bambang said the government would impose sanctions on coal producers whose coal price not in accordance with the index.

Bambang said that coal pricing actually had been regulated for producers holding the so-called first-generation contracts of work, locally known by the acronym PKP2B, which contributed more than 80 percent to Indonesia's total coal production.

But, a similar regulation had yet to be applied to the mining contract (KP), which was issued by regional governments.

"We have no problem with the PKP2B, because they always consult us about selling prices before they sell their coal. The main problem is with KP," Bambang said.

He added the government regulation about the coal pricing index was expected to be completed in October and will come into effect immediately.

The regulation will complete the mining law's derivative regulations which will include the domestic market obligation for coal and mineral producers.

Purnomo said these regulations would be the key points to attract investors.

"Most of the time, investors are more interested in knowing the derivative regulations as they elaborate the operational details," Purnomo said.

The long-debated mining law was passed by the House of Representatives in December last year.

Now the government is formulating four implementing regulations to put the law into effect.

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