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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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Thursday, 23 January 20
AFRICAN POWER PLATFORM PUBLISHES REPORTS ON POWER SECTOR FRAMEWORK FOR SELECTED AFRICAN COUNTRIES
Press Release: African Power Platform publishes Reports on Power Sector Framework for selected African Countries
With the repo ...
Thursday, 23 January 20
COAL-BASED ELECTRICITY GENERATION SURGES 95% IN 2019 - PROFIT PAKISTAN TODAY
Coal-based power generation jumped 94.5 percent to 2,030 Gigawatt hours (GWh) in the year to November 2019, taking its share in the country’s ...
Wednesday, 22 January 20
INDIA: COAL PRODUCTION FROM CAPTIVE MINES RAISES 24% OUTPUT IN APRIL TO DECEMBER - FINANCIAL EXPRESS
Coal production from captive mines in the first nine months of the ongoing financial year was up 24% year-on-year (y-o-y) at 40.93 million tonne (M ...
Wednesday, 22 January 20
SHIPPING MARKET INSIGHT - INTERMODAL
It seems that we are finally seeing whitish smoke as far as the trade feud between the US and China is concerned, while following this much anticip ...
Tuesday, 21 January 20
IRON ORE - 5 THINGS TO WATCH IN 2020 - WOOD MACKENZIE
Wood Mackenzie identifies five trends that will impact the iron ore industry.
Slower demand growth (especially in China) and a decen ...
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- ICICI Bank Limited - India
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Therma Luzon, Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Kepco SPC Power Corporation, Philippines
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- Thai Mozambique Logistica
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Gujarat Electricity Regulatory Commission - India
- IHS Mccloskey Coal Group - USA
- Coastal Gujarat Power Limited - India
- Central Java Power - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rashtriya Ispat Nigam Limited - India
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Mercuria Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Georgia Ports Authority, United States
- Jaiprakash Power Ventures ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Antam Resourcindo - Indonesia
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Vedanta Resources Plc - India
- Baramulti Group, Indonesia
- Semirara Mining Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Attock Cement Pakistan Limited
- The Treasury - Australian Government
- Central Electricity Authority - India
- The University of Queensland
- Power Finance Corporation Ltd., India
- Singapore Mercantile Exchange
- Wood Mackenzie - Singapore
- Electricity Authority, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Ministry of Finance - Indonesia
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Vizag Seaport Private Limited - India
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- Agrawal Coal Company - India
- Siam City Cement - Thailand
- Tata Chemicals Ltd - India
- Sakthi Sugars Limited - India
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- Formosa Plastics Group - Taiwan
- Kaltim Prima Coal - Indonesia
- Independent Power Producers Association of India
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Cement Manufacturers Association - India
- Bulk Trading Sa - Switzerland
- GVK Power & Infra Limited - India
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- Price Waterhouse Coopers - Russia
- International Coal Ventures Pvt Ltd - India
- Orica Mining Services - Indonesia
- Eastern Energy - Thailand
- Ind-Barath Power Infra Limited - India
- Dalmia Cement Bharat India
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- TeaM Sual Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Electricity Generating Authority of Thailand
- PetroVietnam Power Coal Import and Supply Company
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Indonesian Coal Mining Association
- Asmin Koalindo Tuhup - Indonesia
- Uttam Galva Steels Limited - India
- Merrill Lynch Commodities Europe
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
- Indian Energy Exchange, India
- Meenaskhi Energy Private Limited - India
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- London Commodity Brokers - England
- White Energy Company Limited
- Malabar Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- GAC Shipping (India) Pvt Ltd
- Coal and Oil Company - UAE
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Ministry of Mines - Canada
- Parry Sugars Refinery, India
- Banpu Public Company Limited - Thailand
- Pendopo Energi Batubara - Indonesia
- Kideco Jaya Agung - Indonesia
- Timah Investasi Mineral - Indoneisa
- Lanco Infratech Ltd - India
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Kumho Petrochemical, South Korea
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Sree Jayajothi Cements Limited - India
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- VISA Power Limited - India
- Global Coal Blending Company Limited - Australia
- PTC India Limited - India
- Interocean Group of Companies - India
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Goldman Sachs - Singapore
- Indika Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Mjunction Services Limited - India
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Miang Besar Coal Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Commonwealth Bank - Australia
- Karaikal Port Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Rio Tinto Coal - Australia
- Maheswari Brothers Coal Limited - India
- Marubeni Corporation - India
- CNBM International Corporation - China
- ASAPP Information Group - India
- Energy Development Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Salva Resources Pvt Ltd - India
- Bangladesh Power Developement Board
- Global Green Power PLC Corporation, Philippines
- Australian Commodity Traders Exchange
- Star Paper Mills Limited - India
- Manunggal Multi Energi - Indonesia
- Parliament of New Zealand
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- Bayan Resources Tbk. - Indonesia
- Energy Link Ltd, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- Jindal Steel & Power Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Toyota Tsusho Corporation, Japan
- Australian Coal Association
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- Bukit Baiduri Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Makmur.PT - Indonesia
- Makarim & Taira - Indonesia
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- South Luzon Thermal Energy Corporation
- Sarangani Energy Corporation, Philippines
- Posco Energy - South Korea
- Bhatia International Limited - India
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