Agenda

Day 1

Introduction

Comparison of Indonesian & Australian Coal Industries

Export History 1990 – 2009
Differences in Mining Methods & Transport Systems
Coal Quality Differentials
Variations in Industry Structures and Regulatory Frameworks
Different Approaches in price setting
Impact of China and India on Indonesian and Australian steam coal prices
Effect of the 2011Japanese tsunami and 2011 floods in Queensland on regional coal prices

FOB Coal Price Fundamentals

What do we mean by “Price”?
~ Price Defined
~ Equilibrium vs. Supply (Offer) Price vs. Demand (Bid) Price
~ Reporting Basis and Energy Unit Conversions
FOB Steam Coal Price Indices used in Asia
~ Methodology and Data Sources for each Index
~ Strengths and Weaknesses of each index
Spot vs. Term Prices: How have they varied over time?
Steam Coal Commodity Cycles & the Impact of“Market Sentiment” on FOB Steam Coal Prices
Common mistakes and errors in setting and interpreting FOB prices

Determining the Cost of Shipping

Introduction to Shipping Terminology
Methodology and Data Sources for calculating shipping costs
The Baltic Exchange Indices and their role in setting transport costs
NETPAS as a tool for calculating shipping distances
Case Study & Sensitivity Analyses of Shipping Costs using Shipping Cost Model
~ Distance (Australian vs. Kalimantan Ports)
~ Fuel Usage Efficiency vs. Speed
~ Price of Bunker
~ Term of Contract
~ Consecutive vs. Non-Consecutive Voyage Contracts
~ Port Declared as Open Position for Vessel
~ Loading/Unloading Rates
~ Port Costs
Impacts on Shipping Costs of broker fees, freight taxes and other factors such as sea margin and port usage of fuel

FOB Price Setting: Coal Producer’s Perspective

Supply considerations at the mine site
~ Risk vs. Reward as Price Setting Factor
~ Short term vs. Long Term Production Decisions
~ Components of Total Cash Costs and Expected Margins
~ Examples of Cash Cost Estimates for Specific Indonesian and Australian Suppliers
~ Relationship between a supplierís expected coal price and his coal quality
~ Factors affecting cash costs of coal producers over time
Differences in domestic and export FOB prices – Specific examples from Australia and Indonesia.

FOB Price Assessment: IPP Coal Buyer’s Perspective

Short-term vs. Long-Term Coal Buying Decisions
Factors Affecting Short-term Coal Buying Decisions
~ Type of contract and Contract terms on minimum take and price
~ Availability and Efficiency of Plant
~ Dispatch Control
~ Regulations
Factors Affecting Long-term Buying Decisions
~ Market Structure and Ability to pass-through fuel costs
~ Choice of Technology
~ Assessment of Competitive Position of Coal vs. Other Fuels
~ Regulations
~ Taxes and Tax Incentives
Case Study Analysis of Long term Investment Decision
~ Introduction to IPP Financial Model for Assessing Projects
~ Hypothetical Case Study for 1200 MW coal-fired power plant showing impacts on long term investment decision of:
~ different coal and gas prices and plant heat rates;
~ capital costs and plant lifetime; and
~ plant capacity and load factors

Part #1: Pricing Provisions of Typical Coal Supply Agreement

Process of Soliciting Coal Price Bids and Negotiating Price Provisions of a CSA
Selecting an FOB Price Index and Setting the Initial Coal Price
FOB Price Adjustment Equations and Related Contract Provisions to Address:
~ Changes in price index value
~ Variations in coal quality
~ Ordering of optional and pre-COD quantities
~ Cancelling Shipments
~ Transport Price Adjustment Terms and Related Price Provisions
Transport Price Terms and Price Adjustment Equations for Base Quantity
~ Transport Price Terms and Price Adjustment Equations for Optional and Pre-COD Quantities
Possible Terms for Buyerís Relief of Minimum Take Obligations
~ Rationale for relief
~ Terms found in early CSAs
~ Latest terms (either “for convenience” relief = % of base quantity or unlimited relief based on verifiable reasons and sufficient advance notice)
Floor and ceiling prices: Do they help?
Price re-openers: When should they be considered?
~ Timing/Frequency for price re-openers
~ Grounds for review of pricing basis
~ “Out of Market” circuit breaker provisions
Timing of Payments (Days grace, LC requirements, interest for late payment)

Part 2: Quality Control Issues related to Pricing

Methods/standards of sampling and testing to determine compliance with coal quality guarantees
Contract terms for addressing quality discrepancies between test results at the load port and the discharge port
Definition of a “statistically significant” quality difference
Draft Surveys at load port and discharge port: How to reconcile any differences
Options for Seller to “make good” a rejected shipment
Options for dealing with a shipment that is already at sea or unloaded when Seller learns that it does not comply with one or more reject limits
Provisions for replacing a discontinued or obsolete price index

Potential Impacts of Regulatory Factors on FOB Coal Prices

Case Study #1: Australia’s Carbon Pricing Mechanism and Clean Energy Future Plan

Short History of Carbon (CO2) pricing in Australia
Current status
Potential Impacts on coal prices and the demand and supply of coal in Australia
Implications for Coal Prices in Asia
Short exercise showing how carbon equivalent emissions will be calculated under the Australian Clean Energy Future plan and its impact on the delivered coal price based on assumed prices per CO2 per tonne.

Case Study #2: Indonesia’s DMO & Coal Price Regulations

Overview of New Mining Law
Status of Implementing Rules and Regulations
The rationale and implementing procedures of the DMO Regulation
The rationale and implementing procedures of the Coal Price Regulation (Permen 17/2010)
Potential Impacts of Permen 17/2010 on coal prices and the demand for Indonesian coal
Do holders of CCOWs have to comply with both of these regulations?
Short exercise showing how coal prices will be determined under current draft of coal price regulation and relationship to current prices

Open Discussion of Days 1 & 2 Topics

Resolving Contract Disputes through Arbitration and Contract Termination Provisions

Using Coal Price Derivatives as a Price Risk Management Tool