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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, 26 November 19
PREPARATIONS INTENSIFY AS 1 JANUARY 2020 GLOBAL CUT IN SULPHUR IN SHIP'S FUEL OIL LOOMS: IMO
“IMO 2020” requirements for ships to cut sulphur oxide emissions enter into effect in just over one month’s time. This will signi ...
Monday, 25 November 19
COAL SUPPLY BY CIL TO POWER SECTOR DROPS OVER 8 PC TO 253 MT IN APRIL-OCTOBER - PTI
Supply of coal by state-owned CIL to the power sector registered a decline of 8.5 per cent to 253 million tonnes in the April-October period of thi ...
Monday, 25 November 19
A 53,000DWT SHIP FIXED AT $9,500 DELIVERY SINGAPORE TRIP, VIA INDONESIA, REDELIVERY VIETNAM - BALTIC BRIEFING
Capesize
After a week of value being eroded on the Capesize market, Friday brought improved sentiment across most of the routes. The 5TC averag ...
Monday, 25 November 19
KOWEPO INVITED 6.79 MILLION TONS OF (SUB)BITUMINOUS STEAM COAL BIDS
COALspot.com: South Korea’s Korea Western Power Co., Ltd. (KOWEPO) has issued an international tender for 6,798,000 tons of coal for 5 years ...
Friday, 22 November 19
CHINA'S BENCHMARK POWER COAL PRICE REMAINS FLAT - XINHUA
China’s benchmark power coal price remained flat during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
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- Kohat Cement Company Ltd. - Pakistan
- Eastern Energy - Thailand
- Meralco Power Generation, Philippines
- Kideco Jaya Agung - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- The Treasury - Australian Government
- Timah Investasi Mineral - Indoneisa
- SMC Global Power, Philippines
- Sakthi Sugars Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Georgia Ports Authority, United States
- White Energy Company Limited
- Neyveli Lignite Corporation Ltd, - India
- Vijayanagar Sugar Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Makarim & Taira - Indonesia
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Bharathi Cement Corporation - India
- Metalloyd Limited - United Kingdom
- Lanco Infratech Ltd - India
- Ministry of Transport, Egypt
- Bhatia International Limited - India
- Vizag Seaport Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- TeaM Sual Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Orica Australia Pty. Ltd.
- Indika Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- India Bulls Power Limited - India
- Eastern Coal Council - USA
- Kapuas Tunggal Persada - Indonesia
- Directorate Of Revenue Intelligence - India
- Kumho Petrochemical, South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Sical Logistics Limited - India
- Romanian Commodities Exchange
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- GVK Power & Infra Limited - India
- Electricity Authority, New Zealand
- Samtan Co., Ltd - South Korea
- Global Green Power PLC Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Chamber of Mines of South Africa
- Indogreen Group - Indonesia
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Petron Corporation, Philippines
- Tamil Nadu electricity Board
- Indonesian Coal Mining Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Business Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Pendopo Energi Batubara - Indonesia
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Electricity Generating Authority of Thailand
- MS Steel International - UAE
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- The University of Queensland
- Cement Manufacturers Association - India
- Commonwealth Bank - Australia
- Riau Bara Harum - Indonesia
- European Bulk Services B.V. - Netherlands
- Mjunction Services Limited - India
- Aboitiz Power Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Sree Jayajothi Cements Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Aditya Birla Group - India
- Siam City Cement - Thailand
- ASAPP Information Group - India
- Agrawal Coal Company - India
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- Interocean Group of Companies - India
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Star Paper Mills Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- Banpu Public Company Limited - Thailand
- Parry Sugars Refinery, India
- Ministry of Mines - Canada
- Xindia Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
- PowerSource Philippines DevCo
- Semirara Mining and Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- Antam Resourcindo - Indonesia
- Coal and Oil Company - UAE
- McConnell Dowell - Australia
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- Siam City Cement PLC, Thailand
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- Sojitz Corporation - Japan
- Manunggal Multi Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Chettinad Cement Corporation Ltd - India
- Energy Link Ltd, New Zealand
- Straits Asia Resources Limited - Singapore
- Altura Mining Limited, Indonesia
- Holcim Trading Pte Ltd - Singapore
- CNBM International Corporation - China
- Planning Commission, India
- Anglo American - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Renaissance Capital - South Africa
- Tata Chemicals Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- Australian Commodity Traders Exchange
- Parliament of New Zealand
- Deloitte Consulting - India
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Carbofer General Trading SA - India
- VISA Power Limited - India
- Jindal Steel & Power Ltd - India
- Merrill Lynch Commodities Europe
- Kobexindo Tractors - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- Central Java Power - Indonesia
- Bangladesh Power Developement Board
- Port Waratah Coal Services - Australia
- Indian Oil Corporation Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Rashtriya Ispat Nigam Limited - India
- Posco Energy - South Korea
- Grasim Industreis Ltd - India
- AsiaOL BioFuels Corp., Philippines
- IEA Clean Coal Centre - UK
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Borneo Indobara - Indonesia
- Economic Council, Georgia
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