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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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- TNB Fuel Sdn Bhd - Malaysia
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Binh Thuan Hamico - Vietnam
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- Global Coal Blending Company Limited - Australia
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- Malabar Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Heidelberg Cement - Germany
- SMC Global Power, Philippines
- Bhatia International Limited - India
- Altura Mining Limited, Indonesia
- Dalmia Cement Bharat India
- Miang Besar Coal Terminal - Indonesia
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- ASAPP Information Group - India
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Holcim Trading Pte Ltd - Singapore
- Maharashtra Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Central Electricity Authority - India
- Jorong Barutama Greston.PT - Indonesia
- Therma Luzon, Inc, Philippines
- Economic Council, Georgia
- CNBM International Corporation - China
- Eastern Energy - Thailand
- Meralco Power Generation, Philippines
- Renaissance Capital - South Africa
- The State Trading Corporation of India Ltd
- PTC India Limited - India
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Ambuja Cements Ltd - India
- Siam City Cement PLC, Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Coal Association
- Kobexindo Tractors - Indoneisa
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Straits Asia Resources Limited - Singapore
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Coalindo Energy - Indonesia
- Global Business Power Corporation, Philippines
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Ind-Barath Power Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Ceylon Electricity Board - Sri Lanka
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- Xindia Steels Limited - India
- Georgia Ports Authority, United States
- India Bulls Power Limited - India
- Africa Commodities Group - South Africa
- Samtan Co., Ltd - South Korea
- Bayan Resources Tbk. - Indonesia
- Bhushan Steel Limited - India
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- GMR Energy Limited - India
- MS Steel International - UAE
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Star Paper Mills Limited - India
- Energy Development Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Aditya Birla Group - India
- Romanian Commodities Exchange
- Simpson Spence & Young - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Formosa Plastics Group - Taiwan
- Edison Trading Spa - Italy
- VISA Power Limited - India
- CIMB Investment Bank - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Sakthi Sugars Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Cement Manufacturers Association - India
- South Luzon Thermal Energy Corporation
- IEA Clean Coal Centre - UK
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- Jaiprakash Power Ventures ltd
- The Treasury - Australian Government
- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Pipit Mutiara Jaya. PT, Indonesia
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- Kartika Selabumi Mining - Indonesia
- Standard Chartered Bank - UAE
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Borneo Indobara - Indonesia
- London Commodity Brokers - England
- Energy Link Ltd, New Zealand
- Kapuas Tunggal Persada - Indonesia
- Goldman Sachs - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Mintek Dendrill Indonesia
- Bulk Trading Sa - Switzerland
- Planning Commission, India
- The University of Queensland
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Global Green Power PLC Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- OPG Power Generation Pvt Ltd - India
- Central Java Power - Indonesia
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Sarangani Energy Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Kumho Petrochemical, South Korea
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- Parry Sugars Refinery, India
- Riau Bara Harum - Indonesia
- Uttam Galva Steels Limited - India
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- Power Finance Corporation Ltd., India
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- Madhucon Powers Ltd - India
- Sical Logistics Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Kaltim Prima Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Electricity Generating Authority of Thailand
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Lanco Infratech Ltd - India
- Indo Tambangraya Megah - Indonesia
- Globalindo Alam Lestari - Indonesia
- Makarim & Taira - Indonesia
- Interocean Group of Companies - India
- Marubeni Corporation - India
- Eastern Coal Council - USA
- Ministry of Transport, Egypt
- Chamber of Mines of South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Indian Energy Exchange, India
- Mercator Lines Limited - India
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- AsiaOL BioFuels Corp., Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Oil Corporation Limited
- Timah Investasi Mineral - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Grasim Industreis Ltd - India
- Barasentosa Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Rio Tinto Coal - Australia
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Deloitte Consulting - India
- Meenaskhi Energy Private Limited - India
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