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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, 02 January 20
SULPHUR 2020 COMPENDIUM - HOW ARE INDIVIDUAL PORT STATES EXPECTED TO REACT? - STANDARD CLUB
KNOWLEDGE TO ELEVATE
With the new sulphur limits soon to be in force, Standard Club has been investigating the ways in which certain jurisdict ...
Monday, 30 December 19
AUSTRALIAN MINERS HIT BY LOWEST THERMAL COAL PRICE IN MORE THAN A DECADE - THE GUARDIAN
Australian coal exporters have experienced the biggest annual drop in thermal coal prices in more than a decade during 2019, raising doubts about i ...
Monday, 30 December 19
INDIA'S COAL IMPORTS RISE 4% TO 161.43 MT IN APRIL-NOVEMBER 2019 - PTI
The country’s coal imports registered an increase of 4.4 per cent to 161.43 million tonnes (MT) in the April-November period of the ongoing f ...
Sunday, 29 December 19
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Sunday, 29 December 19
IMO 2020 COMPLIANCE: IT'S UP TO US TO BE GOOD CITIZENS - IBIA
One of the concerns around implementation of the 0.50% sulphur limit has been, and continues to be, the need for effective enforcement to ensure a ...
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- SMG Consultants - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- Bulk Trading Sa - Switzerland
- Coalindo Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Gujarat Sidhee Cement - India
- Latin American Coal - Colombia
- Maheswari Brothers Coal Limited - India
- Agrawal Coal Company - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Bhushan Steel Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Bhoruka Overseas - Indonesia
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- Altura Mining Limited, Indonesia
- Mjunction Services Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- PowerSource Philippines DevCo
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- Deloitte Consulting - India
- Alfred C Toepfer International GmbH - Germany
- Meenaskhi Energy Private Limited - India
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- Karbindo Abesyapradhi - Indoneisa
- Coal and Oil Company - UAE
- San Jose City I Power Corp, Philippines
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
- PTC India Limited - India
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Aditya Birla Group - India
- Posco Energy - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Directorate General of MIneral and Coal - Indonesia
- Cement Manufacturers Association - India
- GMR Energy Limited - India
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Thiess Contractors Indonesia
- Riau Bara Harum - Indonesia
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Cigading International Bulk Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- SMC Global Power, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Barasentosa Lestari - Indonesia
- Uttam Galva Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Indonesian Coal Mining Association
- Wood Mackenzie - Singapore
- Pendopo Energi Batubara - Indonesia
- GVK Power & Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- Thai Mozambique Logistica
- Vizag Seaport Private Limited - India
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- Salva Resources Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Orica Australia Pty. Ltd.
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Planning Commission, India
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- Global Green Power PLC Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Savvy Resources Ltd - HongKong
- Renaissance Capital - South Africa
- Global Coal Blending Company Limited - Australia
- GN Power Mariveles Coal Plant, Philippines
- Anglo American - United Kingdom
- ICICI Bank Limited - India
- Ministry of Transport, Egypt
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- Energy Development Corp, Philippines
- Australian Coal Association
- The Treasury - Australian Government
- Indika Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Vedanta Resources Plc - India
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Antam Resourcindo - Indonesia
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Merrill Lynch Commodities Europe
- Kartika Selabumi Mining - Indonesia
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- IHS Mccloskey Coal Group - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- Indogreen Group - Indonesia
- Petron Corporation, Philippines
- Central Java Power - Indonesia
- Larsen & Toubro Limited - India
- Ceylon Electricity Board - Sri Lanka
- Grasim Industreis Ltd - India
- Parry Sugars Refinery, India
- Heidelberg Cement - Germany
- Minerals Council of Australia
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Ambuja Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- Marubeni Corporation - India
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- Bukit Baiduri Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Energy Link Ltd, New Zealand
- Directorate Of Revenue Intelligence - India
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- The State Trading Corporation of India Ltd
- Commonwealth Bank - Australia
- Interocean Group of Companies - India
- Karaikal Port Pvt Ltd - India
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- Carbofer General Trading SA - India
- Bukit Makmur.PT - Indonesia
- Xindia Steels Limited - India
- Madhucon Powers Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Leighton Contractors Pty Ltd - Australia
- Edison Trading Spa - Italy
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Siam City Cement PLC, Thailand
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- White Energy Company Limited
- TeaM Sual Corporation - Philippines
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Indo Tambangraya Megah - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Indian Energy Exchange, India
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- The University of Queensland
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Georgia Ports Authority, United States
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- Siam City Cement - Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- LBH Netherlands Bv - Netherlands
- PNOC Exploration Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
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