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Recent media have cited renewed concern over a more stringent enforcement of govt regulation that requires all coal contracts must be priced above the trailing 3‐month average of Indonesian reference price index (Harga Batubara Acuan or HBA), and must be re‐priced at least every year. The regulation's intention is to maximize govt's receipts of royalties (which is a percentage of revenues) and weed‐out transfer pricing practices.

We believe the impact to most listed producers would be neutral, as most have already complied with the regulation which was issued late last year; in any case it is the producer's interest to negotiate a higher price. Moreover, in a rising spot price environment, the monthly‐updated HBA (an average of four market‐based indices including the Newcastle and the Platts Index) has consistently lagged the weekly updated Newcastle spot (on which most contracts are negotiated).

We believe the impact is likely to be more severe on small producers or coal companies in which the India utilities own direct stakes, such as Adani's, where the mine subsidiary sells coal to its overseas parent at below market prices. Even so, we don't' think this will significantly affect overall Indian demand for Indonesian coal (lest low power utilization is tolerated there), as there aren't many alternative import sources, at least near‐term. Outside of Indonesia, Indian buyers would either have to source from thirdparty sellers in S Africa or look for direct mine investment elsewhere which may take time. S. Africa has higher quality coal (is therefore more expensive), non‐withstanding ongoing infrastructure constrains, and in any case would be negotiated at market.