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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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Friday, 20 September 19
INDIA TO INVITE BIDS FOR COMMERCIAL COAL MINING IN DECEMBER - MINISTER FOR COAL
India aims to begin the process of holding the first round of commercial coal mining auctions December end, Minister for Coal, Mines and Parliament ...
Friday, 20 September 19
INDIA: ECONOMIC SLOWDOWN IMPACTS COAL IMPORT CARGO IN H1 FY20 - PTI
Economic slowdown has impacted coal import cargo in the first half of this fiscal, as overall cargo growth at major ports registered a marginal gro ...
Wednesday, 18 September 19
SHIPPING MARKET INSIGHT - INTERMODAL
During the first week of September, I had the privilege of attending the Donsö Shipping Meet 2019, in Donsö, a small island of around 1,& ...
Tuesday, 17 September 19
PANAMA SHIP REGISTRY MODERNIZES SHIP REGISTRATION
The Panama Ship Registry has announced it will integrate in a single platform “Electronic Ship Registration System (ESRS)” the present ...
Tuesday, 17 September 19
THE DRY BULK FREIGHT MARKET IS ALREADY ON A DOWNWARD CORRECTION - ALLIED
Here we are again, just a breath before the final quarter of the year. Under typical circumstances and on the basis of what we have seen during the ...
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- Larsen & Toubro Limited - India
- Kartika Selabumi Mining - Indonesia
- ASAPP Information Group - India
- Jorong Barutama Greston.PT - Indonesia
- Semirara Mining Corp, Philippines
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Chamber of Mines of South Africa
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- The State Trading Corporation of India Ltd
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- Straits Asia Resources Limited - Singapore
- Antam Resourcindo - Indonesia
- Bayan Resources Tbk. - Indonesia
- MS Steel International - UAE
- Indo Tambangraya Megah - Indonesia
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Makarim & Taira - Indonesia
- Mjunction Services Limited - India
- White Energy Company Limited
- Indogreen Group - Indonesia
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Heidelberg Cement - Germany
- Altura Mining Limited, Indonesia
- Ambuja Cements Ltd - India
- Indian Oil Corporation Limited
- Videocon Industries ltd - India
- Wilmar Investment Holdings
- Medco Energi Mining Internasional
- Singapore Mercantile Exchange
- Intertek Mineral Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Grasim Industreis Ltd - India
- Bukit Baiduri Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- Jaiprakash Power Ventures ltd
- Orica Mining Services - Indonesia
- Sojitz Corporation - Japan
- CNBM International Corporation - China
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Dalmia Cement Bharat India
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- Gujarat Mineral Development Corp Ltd - India
- Mercuria Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Star Paper Mills Limited - India
- Ind-Barath Power Infra Limited - India
- Cement Manufacturers Association - India
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Carbofer General Trading SA - India
- Electricity Authority, New Zealand
- Central Electricity Authority - India
- Coal and Oil Company - UAE
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- Energy Link Ltd, New Zealand
- India Bulls Power Limited - India
- Metalloyd Limited - United Kingdom
- Marubeni Corporation - India
- Renaissance Capital - South Africa
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Bangladesh Power Developement Board
- Bhushan Steel Limited - India
- Mintek Dendrill Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- PetroVietnam Power Coal Import and Supply Company
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Orica Australia Pty. Ltd.
- PNOC Exploration Corporation - Philippines
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- Lanco Infratech Ltd - India
- IEA Clean Coal Centre - UK
- Directorate General of MIneral and Coal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- PowerSource Philippines DevCo
- Mercator Lines Limited - India
- Agrawal Coal Company - India
- GMR Energy Limited - India
- Africa Commodities Group - South Africa
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Manunggal Multi Energi - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Timah Investasi Mineral - Indoneisa
- Essar Steel Hazira Ltd - India
- Jindal Steel & Power Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- ICICI Bank Limited - India
- Ministry of Mines - Canada
- Tata Chemicals Ltd - India
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- IHS Mccloskey Coal Group - USA
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Samtan Co., Ltd - South Korea
- Merrill Lynch Commodities Europe
- Thai Mozambique Logistica
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement - Thailand
- Central Java Power - Indonesia
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- San Jose City I Power Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Kideco Jaya Agung - Indonesia
- Vedanta Resources Plc - India
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Coalindo Energy - Indonesia
- SMG Consultants - Indonesia
- Standard Chartered Bank - UAE
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- The University of Queensland
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Minerals Council of Australia
- Bharathi Cement Corporation - India
- Maheswari Brothers Coal Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- Posco Energy - South Korea
- London Commodity Brokers - England
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Kaltim Prima Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Xindia Steels Limited - India
- Goldman Sachs - Singapore
- Uttam Galva Steels Limited - India
- Kumho Petrochemical, South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- Riau Bara Harum - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Formosa Plastics Group - Taiwan
- Alfred C Toepfer International GmbH - Germany
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- Kepco SPC Power Corporation, Philippines
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