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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, 28 June 24
INDIAN POWER STATIONS STOCKED WITH BUMPER COAL SUPPLY AS TRANSPORT WOES EASE - BUSINESS STANDARD
Even as power demand has touched a historic high of 250 gigawatts (Gw) amid sweltering heat this June, India’s power stations are stocked wit ...
Friday, 28 June 24
INDIA'S CY23 COAL USE LARGER THAN NORTH AMERICA, EUROPE COMBINED - THE HINDU
For the first time, India’s coal consumption surpassed that of North America and Europe combined in the calendar year 2023, said Energy Insti ...
Monday, 24 June 24
PLN'S FINANCIAL SUSTAINABILITY RESTS ON ACCELERATED COAL RETIREMENT AND RENEWABLES DEPLOYMENT - MUTYA YUSTIKA
On 28 May 2024, Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), released its financial report for 2023. Althoug ...
Monday, 24 June 24
INDIA'S COAL-BASED POWER DEMAND AT ALL-TIME HIGH, GOVERNMENT SAYS - REUTERS
India’s demand for coal-based power has risen by 7.3% this fiscal year to an all-time high, the government said in a statement on Wednesday.
...
Monday, 24 June 24
CHINA'S COAL INDUSTRY TURNS GREENER THROUGH INNOVATIVE APPROACHES - PEOPLE'S DAILY
At an opencast mine operated by Inner Mongolia Pingzhuang Coal Group Co. Ltd., a subsidiary of CHN Energy Investment Group (CHN Energy), a 14-meter ...
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Showing 11 to 15 news of total 6871 |
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- Agrawal Coal Company - India
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- VISA Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Renaissance Capital - South Africa
- Meralco Power Generation, Philippines
- Grasim Industreis Ltd - India
- Parliament of New Zealand
- San Jose City I Power Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Baramulti Group, Indonesia
- Bukit Baiduri Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Star Paper Mills Limited - India
- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- SMG Consultants - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Mines - Canada
- Bharathi Cement Corporation - India
- Indian Oil Corporation Limited
- Ministry of Transport, Egypt
- CNBM International Corporation - China
- Indonesian Coal Mining Association
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Vijayanagar Sugar Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Global Coal Blending Company Limited - Australia
- International Coal Ventures Pvt Ltd - India
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
- Commonwealth Bank - Australia
- Aboitiz Power Corporation - Philippines
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- Jindal Steel & Power Ltd - India
- Xindia Steels Limited - India
- ASAPP Information Group - India
- SN Aboitiz Power Inc, Philippines
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- Riau Bara Harum - Indonesia
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- GMR Energy Limited - India
- Makarim & Taira - Indonesia
- Wilmar Investment Holdings
- Intertek Mineral Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- Altura Mining Limited, Indonesia
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Indika Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Borneo Indobara - Indonesia
- New Zealand Coal & Carbon
- The Treasury - Australian Government
- Coastal Gujarat Power Limited - India
- IEA Clean Coal Centre - UK
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Anglo American - United Kingdom
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Globalindo Alam Lestari - Indonesia
- Bhushan Steel Limited - India
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Metalloyd Limited - United Kingdom
- Mintek Dendrill Indonesia
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- Tata Chemicals Ltd - India
- Interocean Group of Companies - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Therma Luzon, Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- IHS Mccloskey Coal Group - USA
- Gujarat Sidhee Cement - India
- Carbofer General Trading SA - India
- White Energy Company Limited
- Vizag Seaport Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Power Finance Corporation Ltd., India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ICICI Bank Limited - India
- Gujarat Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- Samtan Co., Ltd - South Korea
- Kideco Jaya Agung - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- European Bulk Services B.V. - Netherlands
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
- Gujarat Mineral Development Corp Ltd - India
- Toyota Tsusho Corporation, Japan
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Simpson Spence & Young - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- Planning Commission, India
- Electricity Authority, New Zealand
- Posco Energy - South Korea
- Goldman Sachs - Singapore
- Eastern Energy - Thailand
- Central Java Power - Indonesia
- Kaltim Prima Coal - Indonesia
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Orica Australia Pty. Ltd.
- Global Business Power Corporation, Philippines
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PowerSource Philippines DevCo
- Miang Besar Coal Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Pendopo Energi Batubara - Indonesia
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Eastern Coal Council - USA
- Sarangani Energy Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- South Luzon Thermal Energy Corporation
- Barasentosa Lestari - Indonesia
- Krishnapatnam Port Company Ltd. - India
- The University of Queensland
- Mercuria Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- Merrill Lynch Commodities Europe
- Kobexindo Tractors - Indoneisa
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Sakthi Sugars Limited - India
- Kartika Selabumi Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- Savvy Resources Ltd - HongKong
- Bhatia International Limited - India
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Kalimantan Lumbung Energi - Indonesia
- Aditya Birla Group - India
- Sical Logistics Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- Heidelberg Cement - Germany
- Meenaskhi Energy Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Georgia Ports Authority, United States
- Maheswari Brothers Coal Limited - India
- Energy Link Ltd, New Zealand
- Central Electricity Authority - India
- LBH Netherlands Bv - Netherlands
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Banpu Public Company Limited - Thailand
- Global Green Power PLC Corporation, Philippines
- Orica Mining Services - Indonesia
- Siam City Cement PLC, Thailand
- Asmin Koalindo Tuhup - Indonesia
- Lanco Infratech Ltd - India
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Minerals Council of Australia
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Finance - Indonesia
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Bayan Resources Tbk. - Indonesia
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Essar Steel Hazira Ltd - India
- Coal and Oil Company - UAE
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