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