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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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Wednesday, 11 September 19
THE INDONESIAN COAL PRICE REFERENCE FELL HEAVILY IN SEPTEMBER
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...
Wednesday, 11 September 19
SHIPPING MARKET INSIGHT - INTERMODAL
We are going through one of the rare instances where we see optimism building in the dry bulk industry and, as the momentum is still going, the bel ...
Monday, 09 September 19
INDIAN COMPANIES READY TO INVEST IN DEVELOPMENT OF NEW COAL DEPOSITS IN RUSSIA'S YAKUTIA - TASS
Indian metallurgical companies, which received trial batches of coal from Kolmar mining company, are satisfied with the quality of the products and ...
Monday, 09 September 19
COLOMBIA COAL OUTPUT DOWN YEAR-ON-YEAR IN 2ND QUARTER - REUTERS
Colombia, the world’s fifth-largest exporter of coal, produced 18.9 million tonnes of the fuel in the second quarter, down 4.5% from the same ...
Monday, 09 September 19
ULTRAMAX: ASIA A 58,000-TONNER FIXED DELIVERY FUZHOU, VIA INDONESIA, REDELIVERY CHINA, AT $12,800
Capesize
0px The market reached new heights this week as the 5TC topped $38,014, a level not seen in the sector since 2013. Fridays 5TC closed ...
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- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Ministry of Mines - Canada
- Sical Logistics Limited - India
- Binh Thuan Hamico - Vietnam
- Mercator Lines Limited - India
- San Jose City I Power Corp, Philippines
- Ambuja Cements Ltd - India
- Parliament of New Zealand
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Deloitte Consulting - India
- Alfred C Toepfer International GmbH - Germany
- Commonwealth Bank - Australia
- CNBM International Corporation - China
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Uttam Galva Steels Limited - India
- ASAPP Information Group - India
- Miang Besar Coal Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- International Coal Ventures Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- The University of Queensland
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vijayanagar Sugar Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- PNOC Exploration Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Electricity Generating Authority of Thailand
- PTC India Limited - India
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- Ministry of Finance - Indonesia
- Jindal Steel & Power Ltd - India
- Makarim & Taira - Indonesia
- Trasteel International SA, Italy
- Carbofer General Trading SA - India
- Riau Bara Harum - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Videocon Industries ltd - India
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Marubeni Corporation - India
- Timah Investasi Mineral - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Gujarat Sidhee Cement - India
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- Minerals Council of Australia
- Indo Tambangraya Megah - Indonesia
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- New Zealand Coal & Carbon
- Baramulti Group, Indonesia
- Central Electricity Authority - India
- Borneo Indobara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Orica Australia Pty. Ltd.
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- GVK Power & Infra Limited - India
- Malabar Cements Ltd - India
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Mintek Dendrill Indonesia
- Antam Resourcindo - Indonesia
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Singapore Mercantile Exchange
- Therma Luzon, Inc, Philippines
- The State Trading Corporation of India Ltd
- Jorong Barutama Greston.PT - Indonesia
- GMR Energy Limited - India
- Star Paper Mills Limited - India
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Edison Trading Spa - Italy
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Energy Link Ltd, New Zealand
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Bhushan Steel Limited - India
- Siam City Cement - Thailand
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Barasentosa Lestari - Indonesia
- India Bulls Power Limited - India
- Altura Mining Limited, Indonesia
- Anglo American - United Kingdom
- Samtan Co., Ltd - South Korea
- Wilmar Investment Holdings
- Eastern Coal Council - USA
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- Simpson Spence & Young - Indonesia
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining and Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Dalmia Cement Bharat India
- Gujarat Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Oldendorff Carriers - Singapore
- Global Green Power PLC Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Mjunction Services Limited - India
- Interocean Group of Companies - India
- Bhatia International Limited - India
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Iligan Light & Power Inc, Philippines
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Coal and Oil Company - UAE
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Vizag Seaport Private Limited - India
- Coalindo Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- PowerSource Philippines DevCo
- Indian Energy Exchange, India
- Pipit Mutiara Jaya. PT, Indonesia
- Aditya Birla Group - India
- Mercuria Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- Thai Mozambique Logistica
- Toyota Tsusho Corporation, Japan
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Meralco Power Generation, Philippines
- Semirara Mining Corp, Philippines
- Sakthi Sugars Limited - India
- Lanco Infratech Ltd - India
- Latin American Coal - Colombia
- Sojitz Corporation - Japan
- Petron Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Chettinad Cement Corporation Ltd - India
- Merrill Lynch Commodities Europe
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- London Commodity Brokers - England
- Heidelberg Cement - Germany
- European Bulk Services B.V. - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Price Waterhouse Coopers - Russia
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- Electricity Authority, New Zealand
- Formosa Plastics Group - Taiwan
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Kapuas Tunggal Persada - Indonesia
- Grasim Industreis Ltd - India
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bulk Trading Sa - Switzerland
- Orica Mining Services - Indonesia
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Goldman Sachs - Singapore
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