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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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Monday, 21 October 19
COAL TO PLAY SIGNIFICANT ROLE IN SOUTH AFRICA POWER MIX - MINISTER, REUTERS REPORTED
South Africa’s plans for additional power generation over the next decade will involve a variety of energy sources, with coal still playing a ...
Monday, 21 October 19
ULTRAMAX: IN ASIA, TRIPS FROM THE SINGAPORE AREA WERE PAYING BETWEEN $14,000 AND $16,000, DEPENDING ON THE VESSEL SIZE AND DURATION - BALTIC BRIEFING
Capesize
The market traded in a relatively stable supported manner in the Pacific this week while the Atlantic experienced weakening turbulence ...
Friday, 18 October 19
WHY CRUDE TANKER RATES JUST FELL (HALFWAY) BACK TO EARTH - FREIGHT WAVES
Panic drove crude-tanker rates up, very briefly, to mind-bogglingly high assessed levels of around $300,000 per day. Now, the fear factor has been ...
Friday, 18 October 19
SHORT TERM STRENGTH FOR OZ COMMODITIES - BALTIC BRIEFING
Volatility in the global commodity markets is not expected to unduly rattle Australia’s commodity outlook through 2020, but the 2021 picture ...
Friday, 18 October 19
SINGAPORE'S APEX TO LAUNCH LOW-SULFUR FUEL OIL CONTRACT AHEAD OF NEW SHIPPING RULES - REUTERS
Singapore-based Asia Pacific Exchange (APEX) will launch a low-sulfur fuel oil (LSFO) futures contract on Friday aimed at helping shipping and ener ...
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Showing 1306 to 1310 news of total 6871 |
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- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Jindal Steel & Power Ltd - India
- Latin American Coal - Colombia
- Mintek Dendrill Indonesia
- Salva Resources Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- Eastern Energy - Thailand
- San Jose City I Power Corp, Philippines
- Ambuja Cements Ltd - India
- Videocon Industries ltd - India
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- GVK Power & Infra Limited - India
- Romanian Commodities Exchange
- New Zealand Coal & Carbon
- Star Paper Mills Limited - India
- Central Java Power - Indonesia
- Parry Sugars Refinery, India
- Sical Logistics Limited - India
- Australian Commodity Traders Exchange
- Kepco SPC Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Semirara Mining Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- CNBM International Corporation - China
- Karbindo Abesyapradhi - Indoneisa
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Oldendorff Carriers - Singapore
- Sakthi Sugars Limited - India
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Jaiprakash Power Ventures ltd
- Indo Tambangraya Megah - Indonesia
- SMG Consultants - Indonesia
- Central Electricity Authority - India
- Bangladesh Power Developement Board
- Iligan Light & Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- South Luzon Thermal Energy Corporation
- Pipit Mutiara Jaya. PT, Indonesia
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- Bukit Makmur.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Minerals Council of Australia
- Madhucon Powers Ltd - India
- Orica Australia Pty. Ltd.
- Manunggal Multi Energi - Indonesia
- Kideco Jaya Agung - Indonesia
- Bulk Trading Sa - Switzerland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coal and Oil Company - UAE
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Heidelberg Cement - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- India Bulls Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- Wood Mackenzie - Singapore
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- ICICI Bank Limited - India
- CIMB Investment Bank - Malaysia
- Uttam Galva Steels Limited - India
- Planning Commission, India
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- Globalindo Alam Lestari - Indonesia
- Africa Commodities Group - South Africa
- Directorate Of Revenue Intelligence - India
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Parliament of New Zealand
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Economic Council, Georgia
- European Bulk Services B.V. - Netherlands
- Maheswari Brothers Coal Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Indonesian Coal Mining Association
- Price Waterhouse Coopers - Russia
- Pendopo Energi Batubara - Indonesia
- Bharathi Cement Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Bayan Resources Tbk. - Indonesia
- Ministry of Finance - Indonesia
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- White Energy Company Limited
- Commonwealth Bank - Australia
- GAC Shipping (India) Pvt Ltd
- Kumho Petrochemical, South Korea
- Medco Energi Mining Internasional
- Makarim & Taira - Indonesia
- Sree Jayajothi Cements Limited - India
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
- The University of Queensland
- Meralco Power Generation, Philippines
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Coalindo Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Gujarat Sidhee Cement - India
- Energy Development Corp, Philippines
- Binh Thuan Hamico - Vietnam
- PowerSource Philippines DevCo
- Karaikal Port Pvt Ltd - India
- Dalmia Cement Bharat India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Borneo Indobara - Indonesia
- Global Green Power PLC Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- PTC India Limited - India
- Bukit Baiduri Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Timah Investasi Mineral - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- Mercator Lines Limited - India
- Antam Resourcindo - Indonesia
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Tamil Nadu electricity Board
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- Coastal Gujarat Power Limited - India
- Wilmar Investment Holdings
- Vizag Seaport Private Limited - India
- The Treasury - Australian Government
- The State Trading Corporation of India Ltd
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Tata Chemicals Ltd - India
- Sarangani Energy Corporation, Philippines
- Lanco Infratech Ltd - India
- Chettinad Cement Corporation Ltd - India
- Rio Tinto Coal - Australia
- Singapore Mercantile Exchange
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Kaltim Prima Coal - Indonesia
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- Eastern Coal Council - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- Grasim Industreis Ltd - India
- Agrawal Coal Company - India
- Port Waratah Coal Services - Australia
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- International Coal Ventures Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Larsen & Toubro Limited - India
- Georgia Ports Authority, United States
- Kartika Selabumi Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Marubeni Corporation - India
- Petron Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Bhatia International Limited - India
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Trasteel International SA, Italy
- Aditya Birla Group - India
- Kalimantan Lumbung Energi - Indonesia
- Interocean Group of Companies - India
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Kapuas Tunggal Persada - Indonesia
- Meenaskhi Energy Private Limited - India
- VISA Power Limited - India
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