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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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Saturday, 16 November 19
LIFE AFTER FOSSIL FUELS: THE DAYS OF OIL AND COAL TRANSPORTATION ARE NUMBERED - BALTIC EXCHANGE
With the world fiercely focused on a decarbonised future, fossil fuel movers and traders might rightly be reconsidering their future. But cast a wi ...
Saturday, 16 November 19
OIL MARKET REPORT: PAUSING TO REFLECT - IEA
Global oil demand in 3Q19 increased by 1.1 mb/d year-on-year (y-o-y), more than double the 435 kb/d seen in 2Q19. China’s demand increased by ...
Friday, 15 November 19
RISING ENERGY DEMAND IN SOUTHEAST ASIA TO BE MET AND SUPPORTED BY COAL - WORLD COAL
Last week the International Energy Agency (IEA) released its semi-annual Southeast Asia Energy Outlook report which outlines the latest insights in ...
Thursday, 14 November 19
EIA EXPECTS U.S. STEAM COAL EXPORTS TO FACE INCREASING COMPETITION FROM EASTERN EUROPEAN SOURCES
EIA expects total U.S. coal production in 2019 to total 698 million short tons (MMst), an 8% decrease from the 2018 level of 756 MMst. The decline ...
Wednesday, 13 November 19
INDONESIAN NOVEMBER COAL PRICE REFERENCE LOGS FIRST GAIN SINCE AUGUST
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...
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- Toyota Tsusho Corporation, Japan
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- Thiess Contractors Indonesia
- Larsen & Toubro Limited - India
- Trasteel International SA, Italy
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Formosa Plastics Group - Taiwan
- Economic Council, Georgia
- Borneo Indobara - Indonesia
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- Coal and Oil Company - UAE
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Pendopo Energi Batubara - Indonesia
- Sindya Power Generating Company Private Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Tamil Nadu electricity Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- CIMB Investment Bank - Malaysia
- Barasentosa Lestari - Indonesia
- Posco Energy - South Korea
- Interocean Group of Companies - India
- Mintek Dendrill Indonesia
- The State Trading Corporation of India Ltd
- Malabar Cements Ltd - India
- Independent Power Producers Association of India
- CNBM International Corporation - China
- Therma Luzon, Inc, Philippines
- Indonesian Coal Mining Association
- Karbindo Abesyapradhi - Indoneisa
- Australian Commodity Traders Exchange
- Marubeni Corporation - India
- Sarangani Energy Corporation, Philippines
- Dalmia Cement Bharat India
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- Bhushan Steel Limited - India
- Aditya Birla Group - India
- The University of Queensland
- Ambuja Cements Ltd - India
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Coalindo Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- Indika Energy - Indonesia
- Star Paper Mills Limited - India
- Directorate Of Revenue Intelligence - India
- Kepco SPC Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Vizag Seaport Private Limited - India
- Eastern Energy - Thailand
- Ministry of Transport, Egypt
- Holcim Trading Pte Ltd - Singapore
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Electricity Authority - India
- Rio Tinto Coal - Australia
- White Energy Company Limited
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- Salva Resources Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Carbofer General Trading SA - India
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- Billiton Holdings Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- Chamber of Mines of South Africa
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Oil Corporation Limited
- SMC Global Power, Philippines
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- IHS Mccloskey Coal Group - USA
- Miang Besar Coal Terminal - Indonesia
- Sojitz Corporation - Japan
- ICICI Bank Limited - India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- GMR Energy Limited - India
- IEA Clean Coal Centre - UK
- GAC Shipping (India) Pvt Ltd
- Altura Mining Limited, Indonesia
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Antam Resourcindo - Indonesia
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Kapuas Tunggal Persada - Indonesia
- Jaiprakash Power Ventures ltd
- Semirara Mining and Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Indogreen Group - Indonesia
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- London Commodity Brokers - England
- McConnell Dowell - Australia
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- Anglo American - United Kingdom
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Semirara Mining Corp, Philippines
- Lanco Infratech Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Central Java Power - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Bhatia International Limited - India
- PTC India Limited - India
- Kumho Petrochemical, South Korea
- SN Aboitiz Power Inc, Philippines
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Simpson Spence & Young - Indonesia
- Siam City Cement - Thailand
- VISA Power Limited - India
- Binh Thuan Hamico - Vietnam
- Orica Mining Services - Indonesia
- Planning Commission, India
- Sinarmas Energy and Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
- Minerals Council of Australia
- PNOC Exploration Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Power Finance Corporation Ltd., India
- Essar Steel Hazira Ltd - India
- Bharathi Cement Corporation - India
- ASAPP Information Group - India
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Orica Australia Pty. Ltd.
- Energy Link Ltd, New Zealand
- Deloitte Consulting - India
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Asmin Koalindo Tuhup - Indonesia
- Oldendorff Carriers - Singapore
- Kobexindo Tractors - Indoneisa
- Maheswari Brothers Coal Limited - India
- Vedanta Resources Plc - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- TeaM Sual Corporation - Philippines
- Siam City Cement PLC, Thailand
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- Electricity Generating Authority of Thailand
- Cigading International Bulk Terminal - Indonesia
- Latin American Coal - Colombia
- Romanian Commodities Exchange
- Global Green Power PLC Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- Kaltim Prima Coal - Indonesia
- Attock Cement Pakistan Limited
- Makarim & Taira - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Directorate General of MIneral and Coal - Indonesia
- Mercuria Energy - Indonesia
- Xindia Steels Limited - India
- Ministry of Finance - Indonesia
- Commonwealth Bank - Australia
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- Mercator Lines Limited - India
- Intertek Mineral Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
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