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Thursday, 12 November 15
FOREIGN COAL MINE ACQUISITION - STRATEGY VERSUS OPPORTUNITY FOR INDIAN UTILITIES - DIPESH DIPU
.jpg) The acquisition market for thermal coal assets abroad is dull. Sellers of all hues are in the market; some are actively scouting for buyers while others, hoping against hope that someone looking to buy might knock the door and hence, are their running operations even in cash losses. The coal assets were acquired by many Indian power utilities and commodity trading companies, and some were acquired even leading to unrelated diversification. Indonesia was the toast of coal mine acquisition investments from Indian companies, while there were big investments in Australia, South Africa and other countries too. Why now, when the quoted asset prices are all time low, most Indian investors are shying away when the contrarian strategy would typically require one to grab the opportunity?
The global prices of thermal coal are lower than the March 2009 levels, a lowest observed in a decade after the fall due to global financial crisis. Costs on the other hand have been rising, marginal costs of mining in Australia for a large percentile of coal mines is upward of US $ 60 per tonne, which is nearly the price they fetch for high grade coal. Percentiles for South African and Indonesian mines are better as these are the lowest cost producers in the world. It is common sense that when the commodity price is low, below the marginal cash cost of production, it is advisable to buy the lowest cost producer, which will survive and benefit once the commodity price recovers after the more expensive players are forced out of the market. Now, when the coal prices are lower than the marginal costs and there are several low cost producers willing to sell or have been forced to sell due to financial distress, the absence of buyers indicates only one thing – the concern about price recovery.
Global thermal coal prices had been stable in nominal terms through the mid-1970s till 2003, almost range-bound from US$ 25-35 per tonne. This essentially meant that in real terms prices fell through the three decades. However, since then demand led price hikes scaled new peaks every year and reached close to US$ 200 per tonne in July 2008. The global meltdown in the aftermath of financial crisis led to coal prices tumbling down to US$ 60-65 per tonne in March 2009 before heading back to US$ 135-140 per tonne by early 2011. And since then, there has been a constant downward trend that remains unabated till now.
China has been a prime mover of the global coal industry. The prices turned to its peaks when China became a net importer of coal in 2008-09. In 2014-15, domestic production of coal in China has seen a slowdown due to cost pressures, while its imports have fallen as well by nearly a third from last year. It is being considered that for cleaner environment, China is attempting to lower its dependence on coal-based power generation. While in India, domestic coal supply scenario has improved on two counts - Coal India and SCCL have improved production, and the demand for coal hasn’t picked up as expected. This has led to thermal coal imports falling albeit at a slow pace. Indian power generation capacity addition which was rapid in 2009-2012 has taken a hit, largely due to fuel crisis during that period, apart from challenges such as delays in approvals and clearances and resulting financing constraints. Coal India has also embarked upon a near-1 billion tonnes per annum production by 2020, which may improve domestic coal supplies, while capacity addition growth in power generation may take some time as investor confidence returns to the sector. China and India, thus, do not paint a picture of global coal price recovery soon.
US coal companies are faced with existential questions and have begun to look at the international markets for exports, given that local demand has suffered due to environmental protection laws. Australia also seems to have oversupply challenge. Several key projects that could have further enhanced coal production in Bowen and Galilee basins are now mothballed. Japan has plans to increase coal based generation that will positively impact the demand for coal, but that may not absorb the high oversupplies already in the market.
The other significant disruptor for coal sector has been the emergence of renewable energy, solar power in particular, with scalability and economics gradually tilting in their favour. On a total cost basis, including environmental costs, the inflexion point between coal based and solar power seems to have been reached. The pace of change in technology in these renewables is high, which has resulted in fall of solar power tariffs from Indian Rupees (INR) 12-15 per unit in 2009-10 to INR 4.63 in the recently concluded bids by NTPC. The trend of falling tariffs in solar power coupled with scalabilities that till recently were not considered achievable brought coal based power generation to the inflexion point. While concerns about quality of supplies may persist for some time, suffice it to say that the disruption in coal sector is imminent and inevitable, and that may have an impact on global coal prices.
Given these, it may be optimistic to evaluate coal assets on a price recovery outlook. It may make sense to invest in the assets that may sustain profitability at slightly lower than current prices, possibly in the marginal cost range of US$ 35-45 per tonne for coal of 5000-6000 kCal/kg gross calorific values on as received basis. Investors should prefer operating assets, which may not have construction and development risks as well as risks of permits. Essentially, with these, the investors also need to look at regulatory risks in the destination country.
Indonesian coal sector has been in a flux and has led to enhanced perception of regulatory risks even though from the logistics and mining costs points of view, it may appear the favourable place to buy coalmines. The divestment clause that restricts foreign ownership and eventually makes a foreign buyer a minority stakeholder has the potential to restrict investments only to smaller projects where reserves can be exhausted before a mine transfers ownership. South Africa and southern African countries like Mozambique, Malawi, Zimbabwe, Namibia and Botswana have challenges of logistics even though the regulatory regimes are favourable. Mozambique, for instance, has only one operating Sena rail link connecting the coalfields in Tete to Beira port, which is already running at capacity, and is about 900 kilometers. Infrastructure development plans are now doubtful given the concern of coal price recoveries. Australia has challenges of higher cost of production, compliance costs and higher logistics costs, particularly for coal assets in Galilee basin.
Given these, the attractiveness of coal mine acquisition is low even though the low asset prices provide opportunities. As reported in the national newspapers, Indian government owned companies seem to be scouting for assets, which is far more challenging for them given their approach and methodologies for acquisition. Tendering route may be considered the least efficient for such acquisition as the market size in such tenders gets limited to only those assets who choose to respond to the tenders. It is a passive approach which gets hampered by inefficiencies in information channels as well and may not reach the potential sellers with good assets. In my recently concluded assignments for a few of such government-owned companies, it was observed that most bidders turned out to be Indian companies that invested abroad and have not been able to develop the coal assets well for themselves. For success in the market, it is required that ground work is done privately to assess target zones and identify strategically fitting assets and then approach the owners to nudge them to sell. This, however, may be tough for the government-owned companies in light of their internal processes, which obviously have not been designed for such acquisitions.
For Indian companies to acquire foreign coal assets, it is critical that they identify their strategic objectives and not go by the opportunities the market seemingly provides in terms of large number of sellers in the market willing to sell at relatively low prices. Private sector companies have better procedural manoeuvrability while government-owned companies get tied up in their own processes to effectively acquire assets that fit them. In any case, the long term price outlook being uncertain, investors need to tread with caution and pick assets that may sustain profitability even with worse forecasts. Else, the winners curse follows.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
India
Views and opinions / conclusion expressed herein are personal views of the author and not that of COALspot.com.
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Friday, 02 August 24
COAL MARKET DEVELOPMENTS: FALLING PRICES AMID RECORD-HIGH OUTPUT - WORLD BANK
Coal prices inched up in May (m/m) following an 8 percent decline in 2024Q1. The Australian and South African benchmarks have plummeted more ...
Friday, 26 July 24
FUELEU MARITME IS COMING. IS YOUR CHARTERPARTY READY? - GARD
With less than six months to implementation of FuelEU Maritime in EU and EEA trades, there has been little published advice regarding how to alloca ...
Thursday, 04 July 24
INDIA'S COAL PRODUCTION RISES 14% IN JUNE - PTI
The country’s coal production rose by 14.49% to 84.63 million tonne (MT) in June. The country’s coal output was 73.92 MT in June last f ...
Tuesday, 02 July 24
NTPC CAPTIVE COAL OUTPUT GROWS 15% IN Q1; DESPATCH RISES 17%
State-owned NTPC on Monday reported a 15 per cent year-on-year increase in the production of coal from captives mines to 9.862 metric million tonne ...
Friday, 28 June 24
KOSPO INVITED BIDS FOR 400,000 MT OF MINIMUM 4000 NCV COAL FOR FIVE YEARS
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for total 400,000 MT of Low Calorific Value Coal for 5 years starting from July 2024 until ...
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Showing 6 to 10 news of total 6871 |
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- Bayan Resources Tbk. - Indonesia
- Electricity Authority, New Zealand
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Marubeni Corporation - India
- Romanian Commodities Exchange
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- SMG Consultants - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Ministry of Mines - Canada
- Latin American Coal - Colombia
- Indika Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Borneo Indobara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Indian Oil Corporation Limited
- Vizag Seaport Private Limited - India
- Coal and Oil Company - UAE
- Semirara Mining Corp, Philippines
- Energy Development Corp, Philippines
- Renaissance Capital - South Africa
- International Coal Ventures Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- Bhushan Steel Limited - India
- Mercuria Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Independent Power Producers Association of India
- Bukit Makmur.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- PowerSource Philippines DevCo
- CIMB Investment Bank - Malaysia
- Bhatia International Limited - India
- Kapuas Tunggal Persada - Indonesia
- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Kaltim Prima Coal - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- Interocean Group of Companies - India
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Indo Tambangraya Megah - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Indogreen Group - Indonesia
- Orica Australia Pty. Ltd.
- Agrawal Coal Company - India
- Trasteel International SA, Italy
- PNOC Exploration Corporation - Philippines
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Vedanta Resources Plc - India
- Gujarat Mineral Development Corp Ltd - India
- Global Coal Blending Company Limited - Australia
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- Bharathi Cement Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- Africa Commodities Group - South Africa
- Antam Resourcindo - Indonesia
- Samtan Co., Ltd - South Korea
- Maheswari Brothers Coal Limited - India
- Coastal Gujarat Power Limited - India
- Ind-Barath Power Infra Limited - India
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- Australian Coal Association
- Orica Mining Services - Indonesia
- PTC India Limited - India
- Bangladesh Power Developement Board
- Deloitte Consulting - India
- Commonwealth Bank - Australia
- San Jose City I Power Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Thai Mozambique Logistica
- Sakthi Sugars Limited - India
- Sindya Power Generating Company Private Ltd
- Savvy Resources Ltd - HongKong
- GMR Energy Limited - India
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- Karaikal Port Pvt Ltd - India
- Australian Commodity Traders Exchange
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Directorate General of MIneral and Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Makarim & Taira - Indonesia
- Sojitz Corporation - Japan
- Xindia Steels Limited - India
- Sarangani Energy Corporation, Philippines
- Eastern Energy - Thailand
- Aditya Birla Group - India
- Therma Luzon, Inc, Philippines
- CNBM International Corporation - China
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Timah Investasi Mineral - Indoneisa
- MS Steel International - UAE
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- Mintek Dendrill Indonesia
- Ministry of Finance - Indonesia
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- ASAPP Information Group - India
- Eastern Coal Council - USA
- London Commodity Brokers - England
- Cement Manufacturers Association - India
- Meenaskhi Energy Private Limited - India
- The Treasury - Australian Government
- Pendopo Energi Batubara - Indonesia
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Banpu Public Company Limited - Thailand
- Global Business Power Corporation, Philippines
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- Malabar Cements Ltd - India
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Jaiprakash Power Ventures ltd
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Chettinad Cement Corporation Ltd - India
- Altura Mining Limited, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- SMC Global Power, Philippines
- Attock Cement Pakistan Limited
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Central Electricity Authority - India
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- India Bulls Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- ICICI Bank Limited - India
- White Energy Company Limited
- Ministry of Transport, Egypt
- Parliament of New Zealand
- Leighton Contractors Pty Ltd - Australia
- Mercator Lines Limited - India
- The University of Queensland
- GVK Power & Infra Limited - India
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Kepco SPC Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Standard Chartered Bank - UAE
- LBH Netherlands Bv - Netherlands
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Energy Link Ltd, New Zealand
- Oldendorff Carriers - Singapore
- GAC Shipping (India) Pvt Ltd
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- AsiaOL BioFuels Corp., Philippines
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
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