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Wednesday, 20 November 19
FOREIGN DIRECT INVESTMENTS IN COMMERCIAL COAL MINING IN INDIA? - DIPESH DIPU
 In August 2019, Government of India announced its approval for Foreign Direct Investment (FDI) for coal mining, processing and sale. Not that FDI in coal mining sector was new, but novelty in that was that government now permitted foreign ownership of coal mines for commercial sale of coal produced from such mines. He justifications provided by government sources included need for competition in a sector that has been traditionally dominated by government-owned companies Coal India Limited and Singareni Collieries Company Limited; need for enhanced production as here has been shortfall in meeting demand; and, need for newer technologies that may bring in sustainability to coal mining. These indeed are commendable objectives and opening up the sector for foreign participation may certainly be considered a step in the right direction. However, public policy needs to be grounded in realism, and the reality of attractiveness of commercial coal mining in India does not bode well for foreign participation.
The response of government-owned companies for coal blocks on offer for allotment for commercial coal mining was announced in early August 2019 provides the evidence. Nine coal blocks were put on offer for sale of coal in markets and the eligibility for these were restricted to government-owned companies including the state government-owned ones. There were, however, only three coal blocks[1] that received applications by NMDC Limited, Jharkhand State Mineral Development Corporation and Madhya Pradesh State Mining Corporation. This lukewarm response may indicate towards the market sentiments for commercial coal mining in India. It must also be considered here that the coal blocks for allotment for government-owned companies do not have the two-stage auction based bidding for winning the blocks and, thus, the pay-out required to win these coal blocks may be lower in comparison to coal blocks put out for auctions. So, even with lower additional pay-out to government in the form of premium the coal blocks have not found many takers. There may be several underlying economic reasons, which are amplified for foreign participants, and thus, require consideration to evaluate if this approval for FDI in commercial coal mining would have any impact and if it would meet its stated objectives.
The first and the foremost is the economic feasibility of these mines. The foreign, and indeed any private company, would have to participate in auction process for winning a coal block, and commit to a competitive premium to access the resources. This has been an impediment for private sector participation in India, given the evidence of coal blocks awarded for captive consumption in power and non-regulated sectors that include cement, steel and other approved end users. There seems to be some sanity dawning on participants on these auction with every successive rounds of auction, seen from the lower winning premiums, and hence, it may be expected that the trend may continue. Nonetheless, the premium will certainly erode the margins for commercial miners, the extent of this erosion would be a function of degree of competition for the coal blocks. The margins are also likely to be uncertain in view of the price volatility of coal, which in Indian market is pegged with CIL price and a certain premium that reflects typically the discount that IL prices tend to have over energy-equivalent international prices. This uncertainty of prices is likely to be confounded by the uncertainty in demand-supply gap that these commercial miners are required to fulfil. There has been a shortfall in supply in the recent past, evident from the rise in coal imports in the last two years even with the stated objective of the government to reduce coal imports. This may present itself as an opportunity. However, the question is whether this shortfall is likely to sustain, and thus, create a marketplace for commercial miners. With a slump in thermal power generation and nearly absent pipeline of new coal based projects, this assumption may be quite a big one to make and decide in favour of making foreign direct investment in Indian coal mining.
Other important risks pertain to project execution. There have been several impediments in coal mining project implementations, such as procurement of licenses and permits, acquisition of land and rehabilitation and resettlement of project affected people. These, apart from the procedural challenges, involve risk of reputation. Business practices on all these accounts in mining sector have often been marred with controversies and have led to perceptions of externalities in these processes having significant influence on the outcomes. Foreign participants in Indian mining have been wary of these, and hence, have had little success to show even though they have had offices and a few exploration and contract mining projects in India. Apart from reputation, the risks in procurement of licenses and land acquisition create the risks of project delays, which may then translate into cost escalations, thereby impacting project economics. Coal mining projects may have such challenges in attracting foreign direct investment.
There are challenges of talent shortage and financing as well. Innovative technologies that the foreign miners are likely to bring in India will require high quality geo-statisticians, geologists, mine planners and mining engineers. India does produce graduates in these areas of study but quantities do no necessarily reflect quality, which are further compounded by the brain drain of talent into other industries, primarily, information technology. Mining industry in general, and coal mining in particular, has not been able to retain relent in the last decade or so, with advent of opportunities for the smart geoscientists and engineers in alternate industries. Foreign mining companies may find this crippling.
There are challenges in financing too. Coal mining projects may have been good candidates for resource-based financing, but that has not happened on account of several factors, not the least of those being dominance of government-owned companies priding themselves on debt-free balance sheets, and the quality of geological information that may be inferior to global standards. The market for debt for coal mining then often reduces itself to equipment financing with the equipment being securitised to the lenders. Globally preferred model of equipment leasing is still in its relatively early stages of comprehension and acceptance in Indian mining. With limited options of raising finances, the higher degree of equity investments may also be a deterrent for foreign investors as the may have comparable projects competing for scarce capital.
Coal mining industry has been on a downward spiral globally. Foreign large miners have divested or are divesting their stakes in coal projects. Global bankers have committed themselves to not financing coal and coal based power projects. Insurance companies are shying away from coal projects too. The ecosystem for coal mining project execution is dying. Epitaphs are being written on coal and its demise is predicted by governments, investors and policy analysts wold over. But for the coal addiction of Asia, China and India in particular, the demise may have been sooner. Under such gloomy outlook for the industry, with coal mining companies filing for bankruptcies frequently, it would be tough to get these foreign companies to look at Indian destinations favourably. An industry staring at terminal decline may not witness new investors, and old ones that may have been facing severe challenges in their home countries to look out for opportunities in India.
Optimism at this point of time of foreign miners participating in Indian coal mining sector, that presents a challenging business environment, may be misplaced. Only when the government calls for applications for coal blocks for sale of coal with permitted participation for foreign direct investment that the final picture shall emerge.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
This article originaly published on economictimes and Linkedin
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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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- IEA Clean Coal Centre - UK
- Maharashtra Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Jorong Barutama Greston.PT - Indonesia
- Eastern Energy - Thailand
- Gujarat Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Antam Resourcindo - Indonesia
- Planning Commission, India
- Gujarat Mineral Development Corp Ltd - India
- Larsen & Toubro Limited - India
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Price Waterhouse Coopers - Russia
- Bayan Resources Tbk. - Indonesia
- Metalloyd Limited - United Kingdom
- CNBM International Corporation - China
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Wood Mackenzie - Singapore
- Chettinad Cement Corporation Ltd - India
- Commonwealth Bank - Australia
- Therma Luzon, Inc, Philippines
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Power Finance Corporation Ltd., India
- Kideco Jaya Agung - Indonesia
- Siam City Cement - Thailand
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Iligan Light & Power Inc, Philippines
- Tamil Nadu electricity Board
- PNOC Exploration Corporation - Philippines
- Parry Sugars Refinery, India
- TeaM Sual Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Thiess Contractors Indonesia
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Petrochimia International Co. Ltd.- Taiwan
- LBH Netherlands Bv - Netherlands
- Binh Thuan Hamico - Vietnam
- Wilmar Investment Holdings
- Indonesian Coal Mining Association
- Posco Energy - South Korea
- Vizag Seaport Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Savvy Resources Ltd - HongKong
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Minerals Council of Australia
- Economic Council, Georgia
- Romanian Commodities Exchange
- Lanco Infratech Ltd - India
- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- Port Waratah Coal Services - Australia
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- Karbindo Abesyapradhi - Indoneisa
- Bharathi Cement Corporation - India
- Coalindo Energy - Indonesia
- Trasteel International SA, Italy
- Global Business Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Straits Asia Resources Limited - Singapore
- Electricity Authority, New Zealand
- Ministry of Transport, Egypt
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kohat Cement Company Ltd. - Pakistan
- Neyveli Lignite Corporation Ltd, - India
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Orica Mining Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Standard Chartered Bank - UAE
- Jaiprakash Power Ventures ltd
- Semirara Mining and Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Ministry of Mines - Canada
- Borneo Indobara - Indonesia
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Heidelberg Cement - Germany
- Petron Corporation, Philippines
- London Commodity Brokers - England
- Australian Coal Association
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- Singapore Mercantile Exchange
- Sakthi Sugars Limited - India
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Meralco Power Generation, Philippines
- Electricity Generating Authority of Thailand
- CIMB Investment Bank - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- South Luzon Thermal Energy Corporation
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- SN Aboitiz Power Inc, Philippines
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Malabar Cements Ltd - India
- Australian Commodity Traders Exchange
- McConnell Dowell - Australia
- Rio Tinto Coal - Australia
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- Meenaskhi Energy Private Limited - India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- White Energy Company Limited
- SMC Global Power, Philippines
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- Interocean Group of Companies - India
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Goldman Sachs - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Energy Link Ltd, New Zealand
- The State Trading Corporation of India Ltd
- European Bulk Services B.V. - Netherlands
- SMG Consultants - Indonesia
- Holcim Trading Pte Ltd - Singapore
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Globalindo Alam Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- Central Electricity Authority - India
- IHS Mccloskey Coal Group - USA
- Grasim Industreis Ltd - India
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Baramulti Group, Indonesia
- Global Green Power PLC Corporation, Philippines
- Riau Bara Harum - Indonesia
- Chamber of Mines of South Africa
- VISA Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Xindia Steels Limited - India
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- Manunggal Multi Energi - Indonesia
- Cement Manufacturers Association - India
- Mercuria Energy - Indonesia
- Bhatia International Limited - India
- Africa Commodities Group - South Africa
- Kobexindo Tractors - Indoneisa
- Edison Trading Spa - Italy
- New Zealand Coal & Carbon
- Sindya Power Generating Company Private Ltd
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Timah Investasi Mineral - Indoneisa
- Intertek Mineral Services - Indonesia
- Semirara Mining Corp, Philippines
- Uttam Galva Steels Limited - India
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