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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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Wednesday, 20 November 19
AUSTRALIA'S NEW HOPE POSTS 66% SURGE IN Q1 SALEABLE COAL OUTPUT - REUTERS
Australian coal producer New Hope Corp Ltd reported on Tuesday a 66% jump in saleable coal production in the first quarter, as output ramped up at ...
Wednesday, 20 November 19
THE IMO AND THE PRICE OF GAS OR THE IMPACT OF THE INTERNATIONAL MARITIME ORGANISATION'S SULPHUR 2020 LIMIT FOR MARINE FUEL OIL ON THE PRICE OF GAS - KING & SPALDING
The main bunker fuel for ships is High Sulphur Fuel Oil (HSFO, with sulphur up to 3.5% m/m (mass by mass)). This will all change on 1 January 2020 ...
Wednesday, 20 November 19
SHIPPING MARKET INSIGHT - INTERMODAL
While the market expects the next OPEC meeting, there are still no clear signs indicating that the organization will keep supporting oil prices, wh ...
Monday, 18 November 19
CHINA RECORDS STABLE COAL PRODUCTION IN JAN-OCT: XINHUA
China’s raw coal output registered stable growth in the first 10 months, while its imports remained robust, official data showed.
...
Monday, 18 November 19
SUPRAMAX: IN THE INDONESIAN COAL BUSINESS, A 58KDWT VESSEL FIXED DELIVERY PHILIPPINES, REDELIVERY INDIA AT CLOSE TO $8,000 - BALTIC BRIEFING
Capesize
For most of the week the rates were nudging up under a flurry of activity in the Pacific as levels for the West Australia to China C5 ...
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- PowerSource Philippines DevCo
- Heidelberg Cement - Germany
- Meralco Power Generation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Jindal Steel & Power Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- IEA Clean Coal Centre - UK
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aditya Birla Group - India
- SMG Consultants - Indonesia
- Bulk Trading Sa - Switzerland
- Savvy Resources Ltd - HongKong
- Alfred C Toepfer International GmbH - Germany
- Therma Luzon, Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Latin American Coal - Colombia
- MS Steel International - UAE
- Medco Energi Mining Internasional
- Star Paper Mills Limited - India
- Price Waterhouse Coopers - Russia
- Energy Development Corp, Philippines
- Marubeni Corporation - India
- The University of Queensland
- Coastal Gujarat Power Limited - India
- Attock Cement Pakistan Limited
- Ministry of Mines - Canada
- Iligan Light & Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- Ambuja Cements Ltd - India
- Orica Mining Services - Indonesia
- Coal and Oil Company - UAE
- Minerals Council of Australia
- Kideco Jaya Agung - Indonesia
- McConnell Dowell - Australia
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Directorate General of MIneral and Coal - Indonesia
- Vedanta Resources Plc - India
- Anglo American - United Kingdom
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- White Energy Company Limited
- Tata Chemicals Ltd - India
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Uttam Galva Steels Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Lanco Infratech Ltd - India
- Edison Trading Spa - Italy
- GN Power Mariveles Coal Plant, Philippines
- Billiton Holdings Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Makarim & Taira - Indonesia
- GMR Energy Limited - India
- Salva Resources Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Wood Mackenzie - Singapore
- Xindia Steels Limited - India
- Dalmia Cement Bharat India
- Leighton Contractors Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- Grasim Industreis Ltd - India
- Bhoruka Overseas - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Manunggal Multi Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- VISA Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- OPG Power Generation Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Global Coal Blending Company Limited - Australia
- Intertek Mineral Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Videocon Industries ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Altura Mining Limited, Indonesia
- Eastern Coal Council - USA
- Kepco SPC Power Corporation, Philippines
- Mercuria Energy - Indonesia
- GVK Power & Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Mintek Dendrill Indonesia
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Orica Australia Pty. Ltd.
- Australian Coal Association
- Miang Besar Coal Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Carbofer General Trading SA - India
- Georgia Ports Authority, United States
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Maharashtra Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- London Commodity Brokers - England
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Trasteel International SA, Italy
- Central Electricity Authority - India
- Mjunction Services Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Meenaskhi Energy Private Limited - India
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Interocean Group of Companies - India
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Vizag Seaport Private Limited - India
- Petron Corporation, Philippines
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- The Treasury - Australian Government
- Ministry of Transport, Egypt
- Bangladesh Power Developement Board
- CIMB Investment Bank - Malaysia
- Central Java Power - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- Borneo Indobara - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jaiprakash Power Ventures ltd
- Electricity Generating Authority of Thailand
- Binh Thuan Hamico - Vietnam
- ASAPP Information Group - India
- Madhucon Powers Ltd - India
- Goldman Sachs - Singapore
- Kobexindo Tractors - Indoneisa
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- Sakthi Sugars Limited - India
- Eastern Energy - Thailand
- Standard Chartered Bank - UAE
- Indika Energy - Indonesia
- Planning Commission, India
- Simpson Spence & Young - Indonesia
- Wilmar Investment Holdings
- Sarangani Energy Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Banpu Public Company Limited - Thailand
- Mercator Lines Limited - India
- Commonwealth Bank - Australia
- TeaM Sual Corporation - Philippines
- Australian Commodity Traders Exchange
- Gujarat Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Metalloyd Limited - United Kingdom
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- International Coal Ventures Pvt Ltd - India
- Posco Energy - South Korea
- Indian Energy Exchange, India
- Vijayanagar Sugar Pvt Ltd - India
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
- Antam Resourcindo - Indonesia
- India Bulls Power Limited - India
- Kumho Petrochemical, South Korea
- Essar Steel Hazira Ltd - India
- Kapuas Tunggal Persada - Indonesia
- PNOC Exploration Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- New Zealand Coal & Carbon
- Renaissance Capital - South Africa
- Oldendorff Carriers - Singapore
- Cigading International Bulk Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Indonesian Coal Mining Association
- PTC India Limited - India
- Malabar Cements Ltd - India
- CNBM International Corporation - China
- AsiaOL BioFuels Corp., Philippines
- Economic Council, Georgia
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Baramulti Group, Indonesia
- Port Waratah Coal Services - Australia
- Bharathi Cement Corporation - India
- Thiess Contractors Indonesia
- Rashtriya Ispat Nigam Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Indogreen Group - Indonesia
- Merrill Lynch Commodities Europe
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
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