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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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Tuesday, 17 December 19
AUSTRALIA ENERGY MARKET OPERATOR TURNS SCROOGE ON COAL LOBBY: RUSSELL
Australia, which vies with Indonesia for the title of the world’s largest coal exporter, is planning for an electricity future where use of t ...
Tuesday, 17 December 19
BACK TO FUTURE FOR BUSH AS AUSTRALIA CONSIDERS MOVING AWAY FROM COAL NEWCASTLE - HERALD
Looking backwards could show the way forward for regional communities planning for a future beyond mining.
One of Australia’s ...
Tuesday, 17 December 19
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.01 PCT - XINHUA
China Taiyuan coal transaction price index stood at 133.16 points, down 0.01 percent week on week.
The index, released by China Taiy ...
Tuesday, 17 December 19
YEAR 2019: IT IS LOOKING SET THAT THIS YEAR WILL BE ONE OF THE SLOWEST IN TERMS OF DRY BULK NEWBUILDING ACTIVITY - ALLIED
With just two weeks remaining before 2019 comes to an end, it is now looking set that this year will be one of the slowest in terms of dry bulk new ...
Monday, 16 December 19
ULTRAMAX: A 63,000DWT SHIP FIXING DELIVERY FOR A SINGAPORE TRIP VIA INDONESIA, FOR RE-DELIVERY TO CHINA AT $11,000 - BALTIC BRIEFING
Capesize
It was one-way traffic for the Capesize market this past week, with all routes giving up value. While downward momentum may have slowe ...
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- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- Renaissance Capital - South Africa
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Malabar Cements Ltd - India
- Ambuja Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Chettinad Cement Corporation Ltd - India
- London Commodity Brokers - England
- CNBM International Corporation - China
- ICICI Bank Limited - India
- Simpson Spence & Young - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Makarim & Taira - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bhatia International Limited - India
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- SMC Global Power, Philippines
- Holcim Trading Pte Ltd - Singapore
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- San Jose City I Power Corp, Philippines
- Ministry of Transport, Egypt
- Goldman Sachs - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Central Electricity Authority - India
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- Kartika Selabumi Mining - Indonesia
- Straits Asia Resources Limited - Singapore
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Latin American Coal - Colombia
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- New Zealand Coal & Carbon
- Larsen & Toubro Limited - India
- The Treasury - Australian Government
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Coal and Oil Company - UAE
- Ministry of Finance - Indonesia
- OPG Power Generation Pvt Ltd - India
- GVK Power & Infra Limited - India
- Energy Development Corp, Philippines
- Tata Chemicals Ltd - India
- Australian Commodity Traders Exchange
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- Standard Chartered Bank - UAE
- Samtan Co., Ltd - South Korea
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- Trasteel International SA, Italy
- Sindya Power Generating Company Private Ltd
- Salva Resources Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Karaikal Port Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- VISA Power Limited - India
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Meenaskhi Energy Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Africa Commodities Group - South Africa
- Gujarat Sidhee Cement - India
- Videocon Industries ltd - India
- Oldendorff Carriers - Singapore
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Mjunction Services Limited - India
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- Independent Power Producers Association of India
- Power Finance Corporation Ltd., India
- Chamber of Mines of South Africa
- India Bulls Power Limited - India
- ASAPP Information Group - India
- Globalindo Alam Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- Merrill Lynch Commodities Europe
- Posco Energy - South Korea
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- MS Steel International - UAE
- PetroVietnam Power Coal Import and Supply Company
- CIMB Investment Bank - Malaysia
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- TeaM Sual Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Interocean Group of Companies - India
- Ceylon Electricity Board - Sri Lanka
- Heidelberg Cement - Germany
- Uttam Galva Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Ministry of Mines - Canada
- Savvy Resources Ltd - HongKong
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Marubeni Corporation - India
- Medco Energi Mining Internasional
- Kobexindo Tractors - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- Indogreen Group - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- Coastal Gujarat Power Limited - India
- Binh Thuan Hamico - Vietnam
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Planning Commission, India
- PTC India Limited - India
- LBH Netherlands Bv - Netherlands
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Krishnapatnam Port Company Ltd. - India
- Minerals Council of Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Indonesian Coal Mining Association
- Parliament of New Zealand
- Alfred C Toepfer International GmbH - Germany
- Riau Bara Harum - Indonesia
- Cement Manufacturers Association - India
- Metalloyd Limited - United Kingdom
- Petron Corporation, Philippines
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Therma Luzon, Inc, Philippines
- European Bulk Services B.V. - Netherlands
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Economic Council, Georgia
- Bangladesh Power Developement Board
- Aboitiz Power Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- White Energy Company Limited
- Kumho Petrochemical, South Korea
- Xindia Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Orica Mining Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Miang Besar Coal Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Georgia Ports Authority, United States
- Dalmia Cement Bharat India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Indika Energy - Indonesia
- GMR Energy Limited - India
- Siam City Cement PLC, Thailand
- Australian Coal Association
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- IEA Clean Coal Centre - UK
- GN Power Mariveles Coal Plant, Philippines
- SN Aboitiz Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Coalindo Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
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