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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, 19 December 19
COAL POWER GENERATION CONTINUES TO DECLINE IN GERMANY: DESTATIS, XINHUA REPORTED
The volume of electricity generated in coal-fired power plants in Germany decreased “markedly” by 37 percent to 34 billion kilowatt-hou ...
Thursday, 19 December 19
BANGLADESH'S NBR CUTS VAT ON COAL IMPORT FOR POWER PLANTS - THE DAILY STAR
The National Board of Revenue (NBR) reduced value added tax on the import of coal for power plants to 5 percent from present 15 percent for five ye ...
Wednesday, 18 December 19
AVERAGE PRICES OF COAL IN 2018 WERE MORE THAN 60% HIGHER THAN IN 2016 - IEA
Coal use grew again in 2018.
Global coal demand increased by 1.1%, continuing the rebound that began in 2017 after three years of decline ...
Wednesday, 18 December 19
ASIA IS SET TO SUPPORT GLOBAL COAL DEMAND FOR THE NEXT FIVE YEARS - IEA
Press Release: Global coal demand is expected to decline in 2019 but remain broadly stable over the next five years, supported by robust growth in ...
Wednesday, 18 December 19
SHIPPING MARKET INSIGHT - INTERMODAL
As we all know very well by now, the reduction in the maximum allowable sulphur content of marine fuels in 2020 is likely to have a massive impact ...
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- Chamber of Mines of South Africa
- Salva Resources Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Metalloyd Limited - United Kingdom
- Sakthi Sugars Limited - India
- Deloitte Consulting - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Vizag Seaport Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Iligan Light & Power Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- Barasentosa Lestari - Indonesia
- Indo Tambangraya Megah - Indonesia
- Posco Energy - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- MS Steel International - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Sidhee Cement - India
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Bhoruka Overseas - Indonesia
- Bukit Baiduri Energy - Indonesia
- Edison Trading Spa - Italy
- Marubeni Corporation - India
- Bukit Asam (Persero) Tbk - Indonesia
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- GMR Energy Limited - India
- Thiess Contractors Indonesia
- Maheswari Brothers Coal Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Sree Jayajothi Cements Limited - India
- Australian Commodity Traders Exchange
- SMC Global Power, Philippines
- Jaiprakash Power Ventures ltd
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- Kohat Cement Company Ltd. - Pakistan
- Banpu Public Company Limited - Thailand
- Xindia Steels Limited - India
- Samtan Co., Ltd - South Korea
- Heidelberg Cement - Germany
- Neyveli Lignite Corporation Ltd, - India
- Planning Commission, India
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- Savvy Resources Ltd - HongKong
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Grasim Industreis Ltd - India
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- Ministry of Mines - Canada
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Africa Commodities Group - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Port Waratah Coal Services - Australia
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Baramulti Group, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Madhucon Powers Ltd - India
- IHS Mccloskey Coal Group - USA
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Kobexindo Tractors - Indoneisa
- Rio Tinto Coal - Australia
- Chettinad Cement Corporation Ltd - India
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- SMG Consultants - Indonesia
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- Altura Mining Limited, Indonesia
- Vedanta Resources Plc - India
- White Energy Company Limited
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- Pendopo Energi Batubara - Indonesia
- London Commodity Brokers - England
- GAC Shipping (India) Pvt Ltd
- Meralco Power Generation, Philippines
- Independent Power Producers Association of India
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- South Luzon Thermal Energy Corporation
- PetroVietnam Power Coal Import and Supply Company
- Parliament of New Zealand
- International Coal Ventures Pvt Ltd - India
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Authority, New Zealand
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Therma Luzon, Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- TeaM Sual Corporation - Philippines
- PTC India Limited - India
- Bayan Resources Tbk. - Indonesia
- Economic Council, Georgia
- Central Electricity Authority - India
- The University of Queensland
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- PowerSource Philippines DevCo
- Larsen & Toubro Limited - India
- Petron Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
- Indogreen Group - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Carbofer General Trading SA - India
- Essar Steel Hazira Ltd - India
- Georgia Ports Authority, United States
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Krishnapatnam Port Company Ltd. - India
- India Bulls Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Energy Development Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Tata Chemicals Ltd - India
- Eastern Energy - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Commonwealth Bank - Australia
- Thai Mozambique Logistica
- Borneo Indobara - Indonesia
- Indika Energy - Indonesia
- Interocean Group of Companies - India
- Karaikal Port Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Merrill Lynch Commodities Europe
- Billiton Holdings Pty Ltd - Australia
- Coal and Oil Company - UAE
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Mjunction Services Limited - India
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- Standard Chartered Bank - UAE
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Bharathi Cement Corporation - India
- Global Green Power PLC Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bangladesh Power Developement Board
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- New Zealand Coal & Carbon
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- Star Paper Mills Limited - India
- PNOC Exploration Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Sical Logistics Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Finance - Indonesia
- Electricity Generating Authority of Thailand
- Power Finance Corporation Ltd., India
- Makarim & Taira - Indonesia
- Bhatia International Limited - India
- Eastern Coal Council - USA
- Indian Oil Corporation Limited
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- Manunggal Multi Energi - Indonesia
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