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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, 17 October 19
INDIA READIES POLICY TO ATTRACT FOREIGN INVESTMENT IN COAL MINING - REUTERS
India expects to have formulated a policy within the next two weeks to attract foreign investment to its coal mining industry, the country’s ...
Wednesday, 16 October 19
INDIA CALLS FOR A RESET OF CLIMATE DEBATE ON COAL AS A FUEL - LIVEMINT
India on Tuesday called for a reset on climate debate on coal as a fuel, in the backdrop of India becoming one of the top renewable energy producer ...
Wednesday, 16 October 19
LESSONS LEARNT FROM CREW INJURED IN HEAVY WEATHER - UK P&I CLUB COMMENTS
KNOWLEDGE TO ELEVATE
Stuart Edmonston, Loss Prevention at UK P&I Club, discusses an incident in which crew were injured whilst on deck in ...
Wednesday, 16 October 19
SHIPPING MARKET INSIGHT - INTERMODAL
In perhaps the most interesting market conditions of the past years, the tanker and the dry bulk industry have created a positive sentiment with re ...
Tuesday, 15 October 19
INDIA READIES POLICY TO ATTRACT FOREIGN INVESTMENT IN COAL MINING - REUTERS
India expects to have formulated a policy within the next two weeks to attract foreign investment to its coal mining industry, the country's Co ...
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- Australian Commodity Traders Exchange
- Ambuja Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Holcim Trading Pte Ltd - Singapore
- The University of Queensland
- Independent Power Producers Association of India
- Australian Coal Association
- Parliament of New Zealand
- Pendopo Energi Batubara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Electricity Generating Authority of Thailand
- Indian Energy Exchange, India
- Sinarmas Energy and Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Thai Mozambique Logistica
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Interocean Group of Companies - India
- Renaissance Capital - South Africa
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- Xindia Steels Limited - India
- White Energy Company Limited
- PNOC Exploration Corporation - Philippines
- Orica Mining Services - Indonesia
- Africa Commodities Group - South Africa
- Intertek Mineral Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Antam Resourcindo - Indonesia
- Malabar Cements Ltd - India
- PTC India Limited - India
- IEA Clean Coal Centre - UK
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Sical Logistics Limited - India
- Coal and Oil Company - UAE
- Sindya Power Generating Company Private Ltd
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Merrill Lynch Commodities Europe
- Standard Chartered Bank - UAE
- Borneo Indobara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Marubeni Corporation - India
- GVK Power & Infra Limited - India
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Rashtriya Ispat Nigam Limited - India
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Jaiprakash Power Ventures ltd
- Agrawal Coal Company - India
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- Lanco Infratech Ltd - India
- Maheswari Brothers Coal Limited - India
- International Coal Ventures Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Bhushan Steel Limited - India
- Planning Commission, India
- Kalimantan Lumbung Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- Parry Sugars Refinery, India
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Altura Mining Limited, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Samtan Co., Ltd - South Korea
- TeaM Sual Corporation - Philippines
- Vizag Seaport Private Limited - India
- Tata Chemicals Ltd - India
- Larsen & Toubro Limited - India
- Vedanta Resources Plc - India
- Madhucon Powers Ltd - India
- ICICI Bank Limited - India
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- London Commodity Brokers - England
- Iligan Light & Power Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- Electricity Authority, New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhatia International Limited - India
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- Ministry of Transport, Egypt
- Chettinad Cement Corporation Ltd - India
- Economic Council, Georgia
- Karbindo Abesyapradhi - Indoneisa
- Mjunction Services Limited - India
- Banpu Public Company Limited - Thailand
- Romanian Commodities Exchange
- Simpson Spence & Young - Indonesia
- Global Coal Blending Company Limited - Australia
- Eastern Coal Council - USA
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- SN Aboitiz Power Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- New Zealand Coal & Carbon
- Bukit Asam (Persero) Tbk - Indonesia
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Energy Link Ltd, New Zealand
- Mercator Lines Limited - India
- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Finance - Indonesia
- South Luzon Thermal Energy Corporation
- Bulk Trading Sa - Switzerland
- Indogreen Group - Indonesia
- Indonesian Coal Mining Association
- Bangladesh Power Developement Board
- Central Electricity Authority - India
- PetroVietnam Power Coal Import and Supply Company
- GMR Energy Limited - India
- Ministry of Mines - Canada
- Minerals Council of Australia
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- Timah Investasi Mineral - Indoneisa
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Leighton Contractors Pty Ltd - Australia
- Central Java Power - Indonesia
- Ind-Barath Power Infra Limited - India
- Sojitz Corporation - Japan
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Baramulti Group, Indonesia
- MS Steel International - UAE
- Therma Luzon, Inc, Philippines
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- Indo Tambangraya Megah - Indonesia
- Port Waratah Coal Services - Australia
- Indian Oil Corporation Limited
- GAC Shipping (India) Pvt Ltd
- Attock Cement Pakistan Limited
- Petron Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- Grasim Industreis Ltd - India
- Kaltim Prima Coal - Indonesia
- Thiess Contractors Indonesia
- Dalmia Cement Bharat India
- Chamber of Mines of South Africa
- Billiton Holdings Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- Coalindo Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Sakthi Sugars Limited - India
- Price Waterhouse Coopers - Russia
- Power Finance Corporation Ltd., India
- Ceylon Electricity Board - Sri Lanka
- Manunggal Multi Energi - Indonesia
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