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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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Friday, 22 November 19
FORTY PERCENT OF ADARO'S COAL SALES VOLUME IN 9M19 GOES TO THE SOUTHEAST ASIA REGION
PT Adaro Energy Tbk released its consolidated financial statements yesterday, for the nine month period, ending September 30, 2019.
...
Friday, 22 November 19
UNCERTAINTY IN THERMAL COAL MARKET PERSISTED IN 3Q19 - ADARO
Uncertainty in thermal coal market persisted in 3Q19, mainly due to the actions, or inactions, of China in setting policies for global coal market. ...
Friday, 22 November 19
CIL TO DEVELOP 55 NEW COAL MINES IN NEXT 5 YEARS: COAL MINISTER
State-owned CIL will develop 55 new coal mines and expand 193 existing ones in the next five years, Parliament was informed. The company is also un ...
Thursday, 21 November 19
4TH DEEP OFFSHORE WEST AFRICA CONGRESS 2020
4th Deep Offshore West Africa Congress 2020
17 Janaury 2020
Accra, Ghana
Press Release: Following the great succ ...
Thursday, 21 November 19
INDONESIA PLANS TO KEEP $70/T COAL PRICE CAP FOR PLN, DMO - REUTERS
Indonesia’s energy minister Arifin Tasrif said his ministry plans to maintain a price cap on coal being sold to state electricity utility, PT ...
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- TNB Fuel Sdn Bhd - Malaysia
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- PTC India Limited - India
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- Chamber of Mines of South Africa
- Borneo Indobara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- TeaM Sual Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Larsen & Toubro Limited - India
- GMR Energy Limited - India
- GVK Power & Infra Limited - India
- Orica Mining Services - Indonesia
- Parry Sugars Refinery, India
- Asmin Koalindo Tuhup - Indonesia
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Bharathi Cement Corporation - India
- CNBM International Corporation - China
- Indian Oil Corporation Limited
- IEA Clean Coal Centre - UK
- Kartika Selabumi Mining - Indonesia
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Straits Asia Resources Limited - Singapore
- Kaltim Prima Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- McConnell Dowell - Australia
- Posco Energy - South Korea
- White Energy Company Limited
- Bhoruka Overseas - Indonesia
- Carbofer General Trading SA - India
- Marubeni Corporation - India
- Bayan Resources Tbk. - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- India Bulls Power Limited - India
- Kobexindo Tractors - Indoneisa
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- Binh Thuan Hamico - Vietnam
- Barasentosa Lestari - Indonesia
- Ministry of Finance - Indonesia
- ICICI Bank Limited - India
- Power Finance Corporation Ltd., India
- Chettinad Cement Corporation Ltd - India
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- Meralco Power Generation, Philippines
- The University of Queensland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Indo Tambangraya Megah - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Mines - Canada
- Sical Logistics Limited - India
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Timah Investasi Mineral - Indoneisa
- Ministry of Transport, Egypt
- Ind-Barath Power Infra Limited - India
- Karaikal Port Pvt Ltd - India
- Semirara Mining Corp, Philippines
- San Jose City I Power Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Altura Mining Limited, Indonesia
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Jaiprakash Power Ventures ltd
- Maharashtra Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Coalindo Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Medco Energi Mining Internasional
- Bangladesh Power Developement Board
- Bukit Baiduri Energy - Indonesia
- Wood Mackenzie - Singapore
- Minerals Council of Australia
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- PNOC Exploration Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- Meenaskhi Energy Private Limited - India
- Mercator Lines Limited - India
- South Luzon Thermal Energy Corporation
- IHS Mccloskey Coal Group - USA
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Indogreen Group - Indonesia
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- The State Trading Corporation of India Ltd
- Commonwealth Bank - Australia
- Mintek Dendrill Indonesia
- Tata Chemicals Ltd - India
- Edison Trading Spa - Italy
- PowerSource Philippines DevCo
- Antam Resourcindo - Indonesia
- Global Coal Blending Company Limited - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Authority, New Zealand
- Thiess Contractors Indonesia
- Petron Corporation, Philippines
- Star Paper Mills Limited - India
- SMG Consultants - Indonesia
- Standard Chartered Bank - UAE
- Bhushan Steel Limited - India
- CIMB Investment Bank - Malaysia
- Xindia Steels Limited - India
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Kumho Petrochemical, South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Singapore Mercantile Exchange
- Australian Coal Association
- Trasteel International SA, Italy
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- MS Steel International - UAE
- Electricity Generating Authority of Thailand
- Australian Commodity Traders Exchange
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Energy Link Ltd, New Zealand
- Interocean Group of Companies - India
- Mjunction Services Limited - India
- Intertek Mineral Services - Indonesia
- Merrill Lynch Commodities Europe
- Semirara Mining and Power Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Planning Commission, India
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- ASAPP Information Group - India
- Orica Australia Pty. Ltd.
- Vedanta Resources Plc - India
- Directorate Of Revenue Intelligence - India
- LBH Netherlands Bv - Netherlands
- Gujarat Sidhee Cement - India
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Eastern Coal Council - USA
- Metalloyd Limited - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- Bukit Makmur.PT - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- Sindya Power Generating Company Private Ltd
- Port Waratah Coal Services - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Rashtriya Ispat Nigam Limited - India
- GAC Shipping (India) Pvt Ltd
- Deloitte Consulting - India
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Bulk Trading Sa - Switzerland
- Rio Tinto Coal - Australia
- Pendopo Energi Batubara - Indonesia
- Madhucon Powers Ltd - India
- Georgia Ports Authority, United States
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Price Waterhouse Coopers - Russia
- Coal and Oil Company - UAE
- Malabar Cements Ltd - India
- Heidelberg Cement - Germany
- VISA Power Limited - India
- European Bulk Services B.V. - Netherlands
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- Ambuja Cements Ltd - India
- Africa Commodities Group - South Africa
- Agrawal Coal Company - India
- Cement Manufacturers Association - India
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
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