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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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Showing 2416 to 2420 news of total 6871 |
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- India Bulls Power Limited - India
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- Billiton Holdings Pty Ltd - Australia
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- SMC Global Power, Philippines
- Central Java Power - Indonesia
- Kumho Petrochemical, South Korea
- The University of Queensland
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- Bukit Asam (Persero) Tbk - Indonesia
- The State Trading Corporation of India Ltd
- Indika Energy - Indonesia
- Siam City Cement PLC, Thailand
- Intertek Mineral Services - Indonesia
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- Ind-Barath Power Infra Limited - India
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
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- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Interocean Group of Companies - India
- Madhucon Powers Ltd - India
- Romanian Commodities Exchange
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- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Planning Commission, India
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- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Energy Link Ltd, New Zealand
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Formosa Plastics Group - Taiwan
- Maharashtra Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- Kapuas Tunggal Persada - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Indian Oil Corporation Limited
- Latin American Coal - Colombia
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Iligan Light & Power Inc, Philippines
- ASAPP Information Group - India
- Karaikal Port Pvt Ltd - India
- Bhushan Steel Limited - India
- SN Aboitiz Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Indogreen Group - Indonesia
- Bangladesh Power Developement Board
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- Simpson Spence & Young - Indonesia
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- Economic Council, Georgia
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- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- Binh Thuan Hamico - Vietnam
- GMR Energy Limited - India
- Marubeni Corporation - India
- IEA Clean Coal Centre - UK
- Star Paper Mills Limited - India
- Malabar Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Eastern Energy - Thailand
- Uttam Galva Steels Limited - India
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Straits Asia Resources Limited - Singapore
- Independent Power Producers Association of India
- Bayan Resources Tbk. - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining Corp, Philippines
- Sakthi Sugars Limited - India
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Coastal Gujarat Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Deloitte Consulting - India
- GAC Shipping (India) Pvt Ltd
- Georgia Ports Authority, United States
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- CIMB Investment Bank - Malaysia
- Jaiprakash Power Ventures ltd
- Siam City Cement - Thailand
- AsiaOL BioFuels Corp., Philippines
- Bhoruka Overseas - Indonesia
- The Treasury - Australian Government
- Chettinad Cement Corporation Ltd - India
- Ambuja Cements Ltd - India
- Medco Energi Mining Internasional
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- Altura Mining Limited, Indonesia
- Mercator Lines Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Salva Resources Pvt Ltd - India
- Petron Corporation, Philippines
- Commonwealth Bank - Australia
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- Sarangani Energy Corporation, Philippines
- Indonesian Coal Mining Association
- Australian Coal Association
- Samtan Co., Ltd - South Korea
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
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- Thai Mozambique Logistica
- Bulk Trading Sa - Switzerland
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Ministry of Mines - Canada
- Offshore Bulk Terminal Pte Ltd, Singapore
- White Energy Company Limited
- Vedanta Resources Plc - India
- Wood Mackenzie - Singapore
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
- Edison Trading Spa - Italy
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Globalindo Alam Lestari - Indonesia
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- Global Business Power Corporation, Philippines
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Sindya Power Generating Company Private Ltd
- Minerals Council of Australia
- Oldendorff Carriers - Singapore
- Trasteel International SA, Italy
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Singapore Mercantile Exchange
- Electricity Authority, New Zealand
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Indian Energy Exchange, India
- Coal and Oil Company - UAE
- Power Finance Corporation Ltd., India
- CNBM International Corporation - China
- Energy Development Corp, Philippines
- Antam Resourcindo - Indonesia
- Jindal Steel & Power Ltd - India
- London Commodity Brokers - England
- Dalmia Cement Bharat India
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- Asmin Koalindo Tuhup - Indonesia
- Agrawal Coal Company - India
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Kaltim Prima Coal - Indonesia
- Heidelberg Cement - Germany
- Lanco Infratech Ltd - India
- International Coal Ventures Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Parry Sugars Refinery, India
- Rashtriya Ispat Nigam Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Renaissance Capital - South Africa
- Bukit Baiduri Energy - Indonesia
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- Directorate Of Revenue Intelligence - India
- VISA Power Limited - India
- TeaM Sual Corporation - Philippines
- Aditya Birla Group - India
- Xindia Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Parliament of New Zealand
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- Merrill Lynch Commodities Europe
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