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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, 20 May 16
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Showing 2426 to 2430 news of total 6871 |
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- India Bulls Power Limited - India
- Sarangani Energy Corporation, Philippines
- PowerSource Philippines DevCo
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Price Waterhouse Coopers - Russia
- Star Paper Mills Limited - India
- Bhoruka Overseas - Indonesia
- Rio Tinto Coal - Australia
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Coal and Oil Company - UAE
- Interocean Group of Companies - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wilmar Investment Holdings
- Holcim Trading Pte Ltd - Singapore
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- Thiess Contractors Indonesia
- Formosa Plastics Group - Taiwan
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- Antam Resourcindo - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Indo Tambangraya Megah - Indonesia
- Bhushan Steel Limited - India
- New Zealand Coal & Carbon
- Manunggal Multi Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- GMR Energy Limited - India
- Global Coal Blending Company Limited - Australia
- Kapuas Tunggal Persada - Indonesia
- CNBM International Corporation - China
- Coalindo Energy - Indonesia
- Larsen & Toubro Limited - India
- Jaiprakash Power Ventures ltd
- Carbofer General Trading SA - India
- Bayan Resources Tbk. - Indonesia
- Ambuja Cements Ltd - India
- Tata Chemicals Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Pipit Mutiara Jaya. PT, Indonesia
- SN Aboitiz Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indika Energy - Indonesia
- Cement Manufacturers Association - India
- CIMB Investment Bank - Malaysia
- Indian Energy Exchange, India
- Kideco Jaya Agung - Indonesia
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- Vizag Seaport Private Limited - India
- Independent Power Producers Association of India
- Standard Chartered Bank - UAE
- South Luzon Thermal Energy Corporation
- Central Java Power - Indonesia
- Ministry of Mines - Canada
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Meralco Power Generation, Philippines
- Deloitte Consulting - India
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Straits Asia Resources Limited - Singapore
- Goldman Sachs - Singapore
- Bukit Makmur.PT - Indonesia
- Metalloyd Limited - United Kingdom
- Latin American Coal - Colombia
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Borneo Indobara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Coastal Gujarat Power Limited - India
- Economic Council, Georgia
- Chamber of Mines of South Africa
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Finance - Indonesia
- Minerals Council of Australia
- GAC Shipping (India) Pvt Ltd
- Power Finance Corporation Ltd., India
- Madhucon Powers Ltd - India
- Mjunction Services Limited - India
- Anglo American - United Kingdom
- Energy Development Corp, Philippines
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Bangladesh Power Developement Board
- Iligan Light & Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Edison Trading Spa - Italy
- Planning Commission, India
- Kaltim Prima Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Siam City Cement PLC, Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Siam City Cement - Thailand
- Port Waratah Coal Services - Australia
- Essar Steel Hazira Ltd - India
- Wood Mackenzie - Singapore
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Eastern Coal Council - USA
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- Maheswari Brothers Coal Limited - India
- Savvy Resources Ltd - HongKong
- Gujarat Mineral Development Corp Ltd - India
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Barasentosa Lestari - Indonesia
- Tamil Nadu electricity Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bulk Trading Sa - Switzerland
- Kumho Petrochemical, South Korea
- The University of Queensland
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- Sical Logistics Limited - India
- Ind-Barath Power Infra Limited - India
- White Energy Company Limited
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- Kalimantan Lumbung Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- MS Steel International - UAE
- Australian Coal Association
- Xindia Steels Limited - India
- PTC India Limited - India
- Energy Link Ltd, New Zealand
- Posco Energy - South Korea
- Bhatia International Limited - India
- Attock Cement Pakistan Limited
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- Africa Commodities Group - South Africa
- Thai Mozambique Logistica
- Global Business Power Corporation, Philippines
- McConnell Dowell - Australia
- Romanian Commodities Exchange
- Timah Investasi Mineral - Indoneisa
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- Commonwealth Bank - Australia
- Malabar Cements Ltd - India
- Parry Sugars Refinery, India
- Binh Thuan Hamico - Vietnam
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Electricity Authority, New Zealand
- Sojitz Corporation - Japan
- Pendopo Energi Batubara - Indonesia
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Ceylon Electricity Board - Sri Lanka
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Gujarat Sidhee Cement - India
- Semirara Mining Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ICICI Bank Limited - India
- Central Electricity Authority - India
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Agrawal Coal Company - India
- Samtan Co., Ltd - South Korea
- SMC Global Power, Philippines
- ASAPP Information Group - India
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Kepco SPC Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Billiton Holdings Pty Ltd - Australia
- Mintek Dendrill Indonesia
- Aditya Birla Group - India
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Miang Besar Coal Terminal - Indonesia
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