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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, 10 October 19
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Friday, 27 September 19
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- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Australian Coal Association
- Sical Logistics Limited - India
- Electricity Authority, New Zealand
- Orica Australia Pty. Ltd.
- PowerSource Philippines DevCo
- Ceylon Electricity Board - Sri Lanka
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Oldendorff Carriers - Singapore
- Eastern Coal Council - USA
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Energy Link Ltd, New Zealand
- Heidelberg Cement - Germany
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- PTC India Limited - India
- London Commodity Brokers - England
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- Tamil Nadu electricity Board
- PNOC Exploration Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- AsiaOL BioFuels Corp., Philippines
- Neyveli Lignite Corporation Ltd, - India
- Economic Council, Georgia
- India Bulls Power Limited - India
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Power Finance Corporation Ltd., India
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Toyota Tsusho Corporation, Japan
- Meralco Power Generation, Philippines
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Kalimantan Lumbung Energi - Indonesia
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Xindia Steels Limited - India
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- Siam City Cement PLC, Thailand
- Billiton Holdings Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Kumho Petrochemical, South Korea
- Lanco Infratech Ltd - India
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Metalloyd Limited - United Kingdom
- Barasentosa Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- Alfred C Toepfer International GmbH - Germany
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Sindya Power Generating Company Private Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Thai Mozambique Logistica
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- IHS Mccloskey Coal Group - USA
- Globalindo Alam Lestari - Indonesia
- SMG Consultants - Indonesia
- Carbofer General Trading SA - India
- Global Green Power PLC Corporation, Philippines
- Madhucon Powers Ltd - India
- LBH Netherlands Bv - Netherlands
- Indogreen Group - Indonesia
- Bulk Trading Sa - Switzerland
- Indo Tambangraya Megah - Indonesia
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Bukit Asam (Persero) Tbk - Indonesia
- Africa Commodities Group - South Africa
- Global Business Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Therma Luzon, Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- Tata Chemicals Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Georgia Ports Authority, United States
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Sree Jayajothi Cements Limited - India
- Straits Asia Resources Limited - Singapore
- San Jose City I Power Corp, Philippines
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- Indian Energy Exchange, India
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Savvy Resources Ltd - HongKong
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Sidhee Cement - India
- Kideco Jaya Agung - Indonesia
- The State Trading Corporation of India Ltd
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
- Orica Mining Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- The University of Queensland
- Intertek Mineral Services - Indonesia
- Ministry of Transport, Egypt
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- European Bulk Services B.V. - Netherlands
- Rio Tinto Coal - Australia
- Singapore Mercantile Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- Central Electricity Authority - India
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
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- White Energy Company Limited
- OPG Power Generation Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Makarim & Taira - Indonesia
- Independent Power Producers Association of India
- GN Power Mariveles Coal Plant, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Mercator Lines Limited - India
- IEA Clean Coal Centre - UK
- Renaissance Capital - South Africa
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bayan Resources Tbk. - Indonesia
- Indika Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Deloitte Consulting - India
- Antam Resourcindo - Indonesia
- Latin American Coal - Colombia
- Karaikal Port Pvt Ltd - India
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Vizag Seaport Private Limited - India
- Chettinad Cement Corporation Ltd - India
- SN Aboitiz Power Inc, Philippines
- Interocean Group of Companies - India
- Indian Oil Corporation Limited
- Aditya Birla Group - India
- Formosa Plastics Group - Taiwan
- Vedanta Resources Plc - India
- Mercuria Energy - Indonesia
- Electricity Generating Authority of Thailand
- ICICI Bank Limited - India
- Kobexindo Tractors - Indoneisa
- Central Java Power - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Medco Energi Mining Internasional
- Agrawal Coal Company - India
- Ambuja Cements Ltd - India
- Larsen & Toubro Limited - India
- Chamber of Mines of South Africa
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Borneo Indobara - Indonesia
- Planning Commission, India
- Jorong Barutama Greston.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Dalmia Cement Bharat India
- Thiess Contractors Indonesia
- Port Waratah Coal Services - Australia
- Coal and Oil Company - UAE
- Coastal Gujarat Power Limited - India
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Bhushan Steel Limited - India
- Sakthi Sugars Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Timah Investasi Mineral - Indoneisa
- Coalindo Energy - Indonesia
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Energy Development Corp, Philippines
- Samtan Co., Ltd - South Korea
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- TNB Fuel Sdn Bhd - Malaysia
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