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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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Wednesday, 25 December 19
COVER FOR WAR AND TERRORISM RISKS, AND COVER IN RESPECT OF BIOLOGICAL AND BIO-CHEMICAL WEAPONS - 2020 POLICY YEAR: AMERICAN CLUB
KNOWLEDGE TO ELEVATE
This Circular describes the arrangements which have been made to provide special cover for war and terrorism risks, and c ...
Wednesday, 25 December 19
EXHAUST GAS CLEANING SYSTEMS (SCRUBBER) GUIDANCE - THE STANDARD CLUB
KNOWLEDGE TO ELEVATE
In a few weeks, IMO’s ‘global sulphur cap’ will take effect. The permitted levels of SOx in ship emissi ...
Wednesday, 25 December 19
INDONESIAN BUKIT ASAM TARGETS TO MINE 30 MLN T OF COAL IN 2020 - REUTERS
Indonesian state-owned coal miner PT Bukit Asam targets to produce around 30 million tonnes of coal in 2020, compared with an estimate of 28.5 mill ...
Wednesday, 25 December 19
SHIPPING MARKET INSIGHT - INTERMODAL
As another year in the shipping industry is coming to an end, it is interesting to look at the dry bulk and tanker markets and how these performed ...
Monday, 23 December 19
VLSFO PRICING & AVAILABILITY NEEDS CAREFUL WATCHING - INTEGR8 FUELS
As we approach January 1st 2020 , the VLSFO price premium to HSFO has widened considerably
We are clearly well into the IMO 2020 transition; ch ...
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- Coal and Oil Company - UAE
- Anglo American - United Kingdom
- Ceylon Electricity Board - Sri Lanka
- Thai Mozambique Logistica
- Sarangani Energy Corporation, Philippines
- Mintek Dendrill Indonesia
- Karaikal Port Pvt Ltd - India
- Wood Mackenzie - Singapore
- Meralco Power Generation, Philippines
- Romanian Commodities Exchange
- Manunggal Multi Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Mjunction Services Limited - India
- Kartika Selabumi Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
- Africa Commodities Group - South Africa
- Metalloyd Limited - United Kingdom
- Binh Thuan Hamico - Vietnam
- Semirara Mining Corp, Philippines
- The University of Queensland
- Kumho Petrochemical, South Korea
- GVK Power & Infra Limited - India
- Renaissance Capital - South Africa
- Mercuria Energy - Indonesia
- Bhushan Steel Limited - India
- Ambuja Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Posco Energy - South Korea
- Billiton Holdings Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- Banpu Public Company Limited - Thailand
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Vedanta Resources Plc - India
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- Port Waratah Coal Services - Australia
- ICICI Bank Limited - India
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Commonwealth Bank - Australia
- VISA Power Limited - India
- Wilmar Investment Holdings
- Parry Sugars Refinery, India
- ASAPP Information Group - India
- Aboitiz Power Corporation - Philippines
- Electricity Authority, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- The State Trading Corporation of India Ltd
- Kaltim Prima Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- Edison Trading Spa - Italy
- MS Steel International - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- Medco Energi Mining Internasional
- Chettinad Cement Corporation Ltd - India
- San Jose City I Power Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Coalindo Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Tamil Nadu electricity Board
- Ministry of Mines - Canada
- Deloitte Consulting - India
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- CIMB Investment Bank - Malaysia
- Simpson Spence & Young - Indonesia
- Timah Investasi Mineral - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Aditya Birla Group - India
- Altura Mining Limited, Indonesia
- SMG Consultants - Indonesia
- Directorate Of Revenue Intelligence - India
- South Luzon Thermal Energy Corporation
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Ministry of Transport, Egypt
- Central Electricity Authority - India
- Thiess Contractors Indonesia
- Planning Commission, India
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- PNOC Exploration Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Samtan Co., Ltd - South Korea
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Borneo Indobara - Indonesia
- Maheswari Brothers Coal Limited - India
- Petron Corporation, Philippines
- Madhucon Powers Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Star Paper Mills Limited - India
- Energy Link Ltd, New Zealand
- Sical Logistics Limited - India
- Bharathi Cement Corporation - India
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Leighton Contractors Pty Ltd - Australia
- CNBM International Corporation - China
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Economic Council, Georgia
- Goldman Sachs - Singapore
- Power Finance Corporation Ltd., India
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Antam Resourcindo - Indonesia
- Indian Energy Exchange, India
- Xindia Steels Limited - India
- London Commodity Brokers - England
- Kepco SPC Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Cigading International Bulk Terminal - Indonesia
- Ind-Barath Power Infra Limited - India
- Energy Development Corp, Philippines
- Carbofer General Trading SA - India
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- Bukit Baiduri Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Indogreen Group - Indonesia
- Formosa Plastics Group - Taiwan
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Global Coal Blending Company Limited - Australia
- Riau Bara Harum - Indonesia
- Singapore Mercantile Exchange
- Kalimantan Lumbung Energi - Indonesia
- Marubeni Corporation - India
- Uttam Galva Steels Limited - India
- Videocon Industries ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Orica Australia Pty. Ltd.
- Price Waterhouse Coopers - Russia
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- Parliament of New Zealand
- Salva Resources Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- SN Aboitiz Power Inc, Philippines
- Grasim Industreis Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Jaiprakash Power Ventures ltd
- PowerSource Philippines DevCo
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Trasteel International SA, Italy
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Indonesian Coal Mining Association
- White Energy Company Limited
- Coastal Gujarat Power Limited - India
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Gujarat Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Bhatia International Limited - India
- International Coal Ventures Pvt Ltd - India
- Malabar Cements Ltd - India
- Baramulti Group, Indonesia
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Ministry of Finance - Indonesia
- Minerals Council of Australia
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