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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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Thursday, 24 October 19
PANAMAX: NEGATIVE SENTIMENT IN THE MARKET AS IT CONTINUES TO WEAKEN - FEARNLEYS
Capesize
The market has continued to slide the last week, as lack of fresh requirements and a slight oversupply of tonnage heading towards Sout ...
Wednesday, 23 October 19
CHINA'S 2019 COAL IMPORTS SET TO RISE MORE THAN 10%: ANALYSTS - REUTERS
China, the world’s top coal buyer, is on track to boost imports of the fuel by more than 10% this year, traders and analysts said on Tuesday, ...
Wednesday, 23 October 19
SHIPPING MARKET INSIGHT - INTERMODAL
Moving closer to the end of the year, we are facing what the market was expecting for quite a while, the ship repair sector booming with the shipya ...
Tuesday, 22 October 19
DRY BULK: DESPITE THE DOWNWARD CORRECTION NOTED OVER THE PAST MONTH, RATES ARE STILL HOLDING OFF AT FAVORABLE LEVELS - ALLIED SHIPPING
Despite the downward correction that has been noted in the dry bulk market over the past month, rates are still holding off at favorable levels. Ev ...
Monday, 21 October 19
SHIPPERS CHANGE COURSE AS FUEL RULES TARGET SULPHUR EMISSIONS - WOOD MACKENZIE
The International Maritime Organization (IMO), the industry’s regulator, will require all ships to reduce the level of sulphur in their engin ...
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- Posco Energy - South Korea
- Grasim Industreis Ltd - India
- Intertek Mineral Services - Indonesia
- Malabar Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Coalindo Energy - Indonesia
- Goldman Sachs - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Neyveli Lignite Corporation Ltd, - India
- Price Waterhouse Coopers - Russia
- Edison Trading Spa - Italy
- Bhatia International Limited - India
- Toyota Tsusho Corporation, Japan
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- Wilmar Investment Holdings
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Carbofer General Trading SA - India
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- Medco Energi Mining Internasional
- Tamil Nadu electricity Board
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- Metalloyd Limited - United Kingdom
- Electricity Generating Authority of Thailand
- Directorate General of MIneral and Coal - Indonesia
- Aditya Birla Group - India
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Bangladesh Power Developement Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parliament of New Zealand
- Ambuja Cements Ltd - India
- Antam Resourcindo - Indonesia
- Manunggal Multi Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Kobexindo Tractors - Indoneisa
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Straits Asia Resources Limited - Singapore
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- London Commodity Brokers - England
- Lanco Infratech Ltd - India
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- India Bulls Power Limited - India
- Trasteel International SA, Italy
- Dalmia Cement Bharat India
- Attock Cement Pakistan Limited
- Thiess Contractors Indonesia
- Minerals Council of Australia
- Meralco Power Generation, Philippines
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Mintek Dendrill Indonesia
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- The University of Queensland
- Commonwealth Bank - Australia
- Mjunction Services Limited - India
- Petron Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement - Thailand
- Sical Logistics Limited - India
- Energy Development Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Indian Oil Corporation Limited
- Wood Mackenzie - Singapore
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- Indonesian Coal Mining Association
- New Zealand Coal & Carbon
- Bukit Makmur.PT - Indonesia
- Standard Chartered Bank - UAE
- IHS Mccloskey Coal Group - USA
- Siam City Cement PLC, Thailand
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Ministry of Mines - Canada
- Billiton Holdings Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Star Paper Mills Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Indogreen Group - Indonesia
- Port Waratah Coal Services - Australia
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Interocean Group of Companies - India
- The State Trading Corporation of India Ltd
- Krishnapatnam Port Company Ltd. - India
- South Luzon Thermal Energy Corporation
- Africa Commodities Group - South Africa
- Global Coal Blending Company Limited - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Singapore Mercantile Exchange
- CNBM International Corporation - China
- Economic Council, Georgia
- Indo Tambangraya Megah - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Deloitte Consulting - India
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Sarangani Energy Corporation, Philippines
- SMG Consultants - Indonesia
- Independent Power Producers Association of India
- Barasentosa Lestari - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Romanian Commodities Exchange
- Kepco SPC Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Marubeni Corporation - India
- Karaikal Port Pvt Ltd - India
- Baramulti Group, Indonesia
- Pendopo Energi Batubara - Indonesia
- Videocon Industries ltd - India
- Holcim Trading Pte Ltd - Singapore
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- MS Steel International - UAE
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- Electricity Authority, New Zealand
- Indika Energy - Indonesia
- Oldendorff Carriers - Singapore
- Parry Sugars Refinery, India
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Sakthi Sugars Limited - India
- CIMB Investment Bank - Malaysia
- Bharathi Cement Corporation - India
- Heidelberg Cement - Germany
- Gujarat Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Borneo Indobara - Indonesia
- PTC India Limited - India
- Bhushan Steel Limited - India
- Australian Commodity Traders Exchange
- SN Aboitiz Power Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Thai Mozambique Logistica
- Chettinad Cement Corporation Ltd - India
- Semirara Mining Corp, Philippines
- Jindal Steel & Power Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Planning Commission, India
- Power Finance Corporation Ltd., India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Sojitz Corporation - Japan
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
- Central Electricity Authority - India
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Ministry of Finance - Indonesia
- White Energy Company Limited
- Orica Mining Services - Indonesia
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Vedanta Resources Plc - India
- IEA Clean Coal Centre - UK
- Savvy Resources Ltd - HongKong
- Latin American Coal - Colombia
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Transport, Egypt
- Bahari Cakrawala Sebuku - Indonesia
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- Uttam Galva Steels Limited - India
- Formosa Plastics Group - Taiwan
- Global Business Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Iligan Light & Power Inc, Philippines
- Cement Manufacturers Association - India
- Indian Energy Exchange, India
- Miang Besar Coal Terminal - Indonesia
- European Bulk Services B.V. - Netherlands
- Chamber of Mines of South Africa
- Mercator Lines Limited - India
- GMR Energy Limited - India
- LBH Netherlands Bv - Netherlands
- GN Power Mariveles Coal Plant, Philippines
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