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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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Sunday, 26 January 20
SUPRAMAX: THE ASIAN BASIN SAW A 56,000DWT SHIP FIXING DELIVERY SAMARINDA TRIP TO WEST COAST INDIA AT $4,750 - BALTIC BRIEFING
Capesize
The market endured heavy losses throughout the past week, with the Capesize 5TC dropping from $8,352 to $4,772. In the lead up to Chin ...
Sunday, 26 January 20
SHIPPING NEEDS TO PREPARE FOR CORONAVIRUS RESTRICTIONS WARNS HILL DICKINSON
The shipping industry needs to be prepared for potential restrictions in order to prevent the further spread of the ‘Wuhan’ coronavirus ...
Friday, 24 January 20
LOW-SULPHUR FUEL OIL PRICES DROP USD 99 PER MT IN SINGAPORE - BIMCO
Singapore has seen one of the largest drops in the price of Very Low Sulphur Fuel Oil (VLSFO), which peaked on 7 January 2020 at USD 740 per metric ...
Friday, 24 January 20
CHINA'S BENCHMARK POWER COAL PRICE REMAINED FLAT DURING THE PAST WEEK - XINHUA
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of coal prices in north China’s major ports, stood at 553 yuan (about 80.1 U.S. dollars) ...
Thursday, 23 January 20
PANAMAX: ANOTHER DISAPPOINTING WEEK IN BOTH THE ATLANTIC AND THE PACIFIC BASIN - FEARNLEYS
Cape Size
From bad to worse for the biggest ships as prices for low-sulphur fuel oil remain high whilst freight rates deteriorate further. Aver ...
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- Indogreen Group - Indonesia
- Ministry of Mines - Canada
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- LBH Netherlands Bv - Netherlands
- South Luzon Thermal Energy Corporation
- Bharathi Cement Corporation - India
- IHS Mccloskey Coal Group - USA
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Altura Mining Limited, Indonesia
- The University of Queensland
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- The Treasury - Australian Government
- Directorate Of Revenue Intelligence - India
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement - Thailand
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Alfred C Toepfer International GmbH - Germany
- Kepco SPC Power Corporation, Philippines
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Goldman Sachs - Singapore
- Essar Steel Hazira Ltd - India
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Mercator Lines Limited - India
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GVK Power & Infra Limited - India
- Bhoruka Overseas - Indonesia
- Electricity Generating Authority of Thailand
- Antam Resourcindo - Indonesia
- VISA Power Limited - India
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- Power Finance Corporation Ltd., India
- White Energy Company Limited
- Dalmia Cement Bharat India
- SMG Consultants - Indonesia
- Vedanta Resources Plc - India
- Madhucon Powers Ltd - India
- Chamber of Mines of South Africa
- Chettinad Cement Corporation Ltd - India
- Tamil Nadu electricity Board
- Neyveli Lignite Corporation Ltd, - India
- PNOC Exploration Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Mercuria Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Thiess Contractors Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Makarim & Taira - Indonesia
- Cigading International Bulk Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- OPG Power Generation Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Economic Council, Georgia
- Ind-Barath Power Infra Limited - India
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Rashtriya Ispat Nigam Limited - India
- Port Waratah Coal Services - Australia
- Standard Chartered Bank - UAE
- Indian Oil Corporation Limited
- Metalloyd Limited - United Kingdom
- SMC Global Power, Philippines
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- Africa Commodities Group - South Africa
- Eastern Coal Council - USA
- Minerals Council of Australia
- Latin American Coal - Colombia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Sidhee Cement - India
- Central Java Power - Indonesia
- Ministry of Finance - Indonesia
- Bulk Trading Sa - Switzerland
- Global Green Power PLC Corporation, Philippines
- The State Trading Corporation of India Ltd
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Medco Energi Mining Internasional
- Jorong Barutama Greston.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Karaikal Port Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- Bukit Makmur.PT - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- IEA Clean Coal Centre - UK
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- McConnell Dowell - Australia
- Agrawal Coal Company - India
- CNBM International Corporation - China
- GN Power Mariveles Coal Plant, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Aditya Birla Group - India
- Interocean Group of Companies - India
- Attock Cement Pakistan Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Anglo American - United Kingdom
- Heidelberg Cement - Germany
- Billiton Holdings Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- Savvy Resources Ltd - HongKong
- Semirara Mining Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Bukit Baiduri Energy - Indonesia
- Singapore Mercantile Exchange
- Edison Trading Spa - Italy
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- Lanco Infratech Ltd - India
- Rio Tinto Coal - Australia
- Bhatia International Limited - India
- Kohat Cement Company Ltd. - Pakistan
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- International Coal Ventures Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Orica Australia Pty. Ltd.
- Marubeni Corporation - India
- Commonwealth Bank - Australia
- Oldendorff Carriers - Singapore
- Jaiprakash Power Ventures ltd
- Baramulti Group, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Trasteel International SA, Italy
- Samtan Co., Ltd - South Korea
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- Wood Mackenzie - Singapore
- San Jose City I Power Corp, Philippines
- Tata Chemicals Ltd - India
- Uttam Galva Steels Limited - India
- PowerSource Philippines DevCo
- Siam City Cement PLC, Thailand
- Global Coal Blending Company Limited - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sical Logistics Limited - India
- Bangladesh Power Developement Board
- Borneo Indobara - Indonesia
- Sarangani Energy Corporation, Philippines
- Coalindo Energy - Indonesia
- Australian Coal Association
- India Bulls Power Limited - India
- Renaissance Capital - South Africa
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Kideco Jaya Agung - Indonesia
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- Indonesian Coal Mining Association
- Pipit Mutiara Jaya. PT, Indonesia
- Binh Thuan Hamico - Vietnam
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- Star Paper Mills Limited - India
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Offshore Bulk Terminal Pte Ltd, Singapore
- Global Business Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- Aboitiz Power Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Vizag Seaport Private Limited - India
- ICICI Bank Limited - India
- Videocon Industries ltd - India
- Planning Commission, India
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
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