236
IABlE, STrong, EFFICIEnT
PT ADARO ENERGY Tbk AND SUBSIDIARIES Schedule 576
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2013 AND 2012
Expressed in thousands of
S Dollars, unless otherwise stated
43. FINANCIAL RISK MANAGEMENT continued
a. Market risk continued
ii Price risk The Group is exposed to commodity price risk because coal is a commodity product traded in the world coal
markets. Prices for Adaro’s coal “Envirocoal” are based on global coal prices, which tend to be highly cyclical and subject to significant fluctuations. As a commodity product, global coal prices are principally dependent on
the supply and demand dynamics of coal in the world export market. The Group did not engage in trading coal contracts and has not entered into long term coal pricing agreements to hedge its exposure to fluctuations in
the coal price but may do so in the future. Instead, the Group entered into one-year fixed price coal contracts with some of its customers to safeguard a portion of its revenue for each year.
The Group is also exposed to commodity price risk relating to purchases of fuel necessary to run its coal mining operations. The Group enters into fuel hedge contracts to hedge against the fluctuations in fuel prices
for part of the estimated annual fuel usage. Besides this, for mining services provided to its customers, in order to manage price risk, the Group entered into long-term contracts with its customers maximum five
years which also allow for price adjustments when the fuel price increases.
At 31 December 2013, other than the derivative financial instruments, there were no financial assets or liabilities with
carrying amounts directly linked to market commodity prices or commodity derivative contracts.
iii Interest rate risk The Group’s interest rate risk arises from long-term borrowing denominated in US Dollars. The interest rate
risk from cash is not significant and all other financial instruments are not interest bearing. Borrowing issued at variable rates exposes the Group to cash flow interest rate risk. Borrowing issued at fixed rates exposes the
Group to fair value interest risk.
The Group manages its cash flow interest rate risk using floating-to-fixed interest rate swaps. These interest rate swaps have the economic effect of converting borrowing from floating rates to fixed rates. Generally, the
Group raises long-term borrowing at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with
other parties to exchange, at specified intervals primarily quarterly, the difference between fixed contract rates and floating-rate interest amounts calculated with reference to the agreed notional amounts. As at 31
December 2013, the Group does not have any interest rate swaps.
As at 31 Decemer 2013, if interest rates on long-term borrowings had been ten basis points higherlower with all other variables held constant, the post-tax profit for the year would have been US961 2012: US1,115
lowerhigher.
b. Credit risk
As at 31 December 2013, the total maximum exposure from credit risk was US1,058,032 2012: US1,067,438. Credit risk arises from cash in banks, time deposits, trade receivables, other receivables, loans to third parties,
loan to a related party, restricted cash and time deposits, and other current and non-current assets.
All the cash in banks, time deposits and restricted cash and time deposits are placed in reputable foreign and local banks. In addition, the Group also transacts its hedging activities with reputable foreign and local banks including
the Group’s lenders.
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DAro EnErgy 2013 AnnuAl rEporT
237
PT ADARO ENERGY Tbk AND SUBSIDIARIES Schedule 577
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2013 AND 2012
Expressed in thousands of
¡
S Dollars, unless otherwise stated
43. FINANCIAL RISK MANAGEMENT continued
b. Credit risk continued
As at 31 December 2013 and 2012, the balance outstanding from trade receivables, other receivables, loans to third parties and loan to a related party is as follows:
31 December 2013 Neither past due
Past due Past due and
nor impaired but not impaired
impaired Total
Trade receivables 283,852
25,713 20,000
329,565 Other receivables
1,673 307
7,000 8,980
Loans to third parties -
16,670 -
16,670 Loan to a related party
- 40,233
- 40,233
Total 285,525
82,923 27,000
395,448
31 December 2012 Neither past due
Past due Past due and
nor impaired but not impaired
impaired Total
Trade receivables 401,181
72,832 10,000
484,013 Other receivables
4,322 6,883
- 11,205
Loans to third parties 36,670
- -
36,670 Loan to a related party
44,562 -
- 44,562
Total 486,735
79,715 10,000
576,450 The entire receivable balances from trade receivables, other receivables, loans to third parties and loan to a related
party are mostly derived from customersthird partiesrelated party which have existed for more than 12 months and do not have any default history.
Management is confident in its ability to continue to control and maintain minimal exposure to credit risk, since the Group has clear policies on the selection of customers, legally binding agreements in place for coal sales, mining
services and other services rendered, and historically low levels of bad debts.
The Group’s general policies for coal sales and rendering services to new and existing customers are as follows: -
selecting customers mostly blue chip power plant companies with strong financial conditions and good reputations.
- acceptance of new customers and sales of coal and rendering services being approved by the authorised
personnel according to the Group’s delegation of authority policy. -
requesting payments by letter of credit for new customers. As at 31 December 2013, Management is of the opinion that there is no concentration of credit risk as there is only
one party which has outstanding balance of 10.9 from the total receivables and loans.
c. Liquidity risk
