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Coal-culating HBA

"October Sky," directed by Joe Johnston and released in 1999, is a heartwarming coming-of-age drama based on the true story of Homer Hickam, a young man growing up in a coal mining town in West Virginia during the 1950s.



The film delves into the transformative power of dreams and the aspirations that can lead individuals to challenge their circumstances, no matter how daunting.


The film's backdrop—a small mining town where the economy is deeply tied to the coal industry, serve as an allegory for the coal sector that has been a cornerstone of economies, particularly in regions where mining is a way of life.


From powering electricity generation to driving industrial processes, coal has been an indispensable resource, propelling progress and development across the globe.


In a recent development, the Indonesian Ministry of Energy and Mineral Resources (ESDM) has once again revised the formula for calculating the Coal Reference Price (Harga Batubara Acuan or HBA).


This revision, outlined in a Ministerial Decree No.245.K/MB.01/MEM.B/2023, introduces a new approach that aims to align the HBA more closely with the real market prices of coal.


This updated HBA formula was utilized to determine the HBA for August 2023, which experienced a decrease of -6.15% MoM, settling at $179.9 USD per ton.



Previously, the reference price was determined through a composite of benchmarks, with each contributing 25%, including the Indonesia Coal Index (ICI), Newcastle Export Index (NEX), Globalcoal Newcastle Index (GCNC), and Platt's 5900. These benchmarks considered various quality parameters, such as calorific value, moisture content, sulfur content, and ash content.


However, the current approach is based on the average realized selling price of coal from the previous month, which constitutes 70% of the calculation, and the selling price from two months before, contributing the remaining 30%.


The new HBA formula also introduces four categories based on coal specifications:


In contrast, the previous formula only featured three categories: HBA (6,332 GAR), HBA I (5,200 GAR), and HBA II (4,200 GAR).


The addition of new HBA categories will accommodate the various types of coal, including those with lower calorie content.


As a result, this formula revision injects a breath of fresh air into the coal industry landscape, particularly for the industry players like PTBA and ADRO.


Our analyst, Andre, has crafted a sensitivity analysis for PTBA's earnings using the new HBA formula. Take a look at the table below to explore the intricate details of this analysis:



(Note that PTBA hasn’t announced its 2Q23 result yet, so we are assuming the ASP to be the same as ADRO at USD95/ton and the HBA at USD120/ton).


For example, if the HBA is USD120/ton and the ASP for export is USD95/ton, it indicates earnings of Rp7,419 billion. For your information, typically HBA is higher than ASP. However, this new formula could lead to a narrowing of the gap, even potentially aligning the HBA with the ASP.


So, if the gap narrows, for instance, with the HBA at USD115/ton and the ASP for export at USD95/ton, there is the potential to achieve earnings of Rp7,511 billion, marking an upside of 1.24%.


In essence, the narrower the gap between HBA and ASP, the lower the royalty the company pays, leading to higher potential earnings.



For ADRO, the impact turns out to be even more favorable. Why? Because their royalty tariff involves a higher percentage than PTBA's.


This is due to ADRO operating under an IUPK-KOP license, with a maximum royalty tariff of 28%. This distinction results in greater potential savings for ADRO in the end.


If the HBA is USD120/ton and the ASP for export is USD95/ton, it indicates earnings of USD823 million. If the gap narrows, with the HBA at USD115/ton and the ASP for export at USD95/ton, there is the potential to achieve earnings USD861 million.


This underscores the potential for ADRO's bottom line to experience an impressive increase of up to 4.63%, all thanks to these new regulations.


By factoring in a more comprehensive range of coal types and their attributes, the revised HBA formula aims to establish a more equitable system of royalty payments, fostering a balanced and aligned pricing structure within the Indonesian coal sector.










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