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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, 22 July 19
SUPRAMAX: THE ASIAN ARENA SAW INCREASED ACTIVITY AND STRONGER NUMBERS BEING CONCLUDED; INDONESIAN ROUNDS REMAINED FIRM - BALTIC BRIEFING
Capesize
Another week of gains as the Atlantic basin continues to be pressurised on tonnage and Brazilian cargoes keep up a steady flow. The Ca ...
Thursday, 18 July 19
WORLD TRADE IN HARD COAL ROSE BY 4.7% IN 2018 - GERMANY COAL IMPORTERS ASSOCIATION
World Trade in Hard Coal Rose by 4.7% in 2018
Hard Coal Can Prevent Stress in the Electric Power System in Germany
• Sharp decl ...
Wednesday, 17 July 19
MARKET INSIGHT - INTERMODAL
The Strait of Hormuz is one of the most important waterways in the world, connecting crude producers in the Middle East with key markets in the res ...
Tuesday, 16 July 19
KING COAL RULES IN JAPAN AS POWER UTILITIES IN THRALL TO LOW-COST FUEL - REUTERS
Japanese utilities will rely on the return of coal-fired power plants from maintenance to meet peak electricity demand this summer, highlighting th ...
Tuesday, 16 July 19
SUPRAMAX: THE ASIAN ARENA WAS SPLIT, WITH A BUILD-UP OF TONNAGE AND LACK OF ENQUIRY IN THE NORTH - BALTIC BRIEFING
Capesize
It was a Brazilian affair with a strong splash of bunkers characterising the Capesize market over the past week. Largely traded in Eur ...
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- The University of Queensland
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vizag Seaport Private Limited - India
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- Economic Council, Georgia
- Siam City Cement PLC, Thailand
- Rashtriya Ispat Nigam Limited - India
- Oldendorff Carriers - Singapore
- GAC Shipping (India) Pvt Ltd
- Indo Tambangraya Megah - Indonesia
- OPG Power Generation Pvt Ltd - India
- London Commodity Brokers - England
- Kalimantan Lumbung Energi - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Vedanta Resources Plc - India
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- CNBM International Corporation - China
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Riau Bara Harum - Indonesia
- Kobexindo Tractors - Indoneisa
- Central Java Power - Indonesia
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- Chamber of Mines of South Africa
- SMG Consultants - Indonesia
- White Energy Company Limited
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Bhoruka Overseas - Indonesia
- McConnell Dowell - Australia
- Kapuas Tunggal Persada - Indonesia
- Aditya Birla Group - India
- India Bulls Power Limited - India
- Thiess Contractors Indonesia
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- VISA Power Limited - India
- Star Paper Mills Limited - India
- Price Waterhouse Coopers - Russia
- LBH Netherlands Bv - Netherlands
- MS Steel International - UAE
- Energy Development Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- PTC India Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Lanco Infratech Ltd - India
- AsiaOL BioFuels Corp., Philippines
- International Coal Ventures Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Tamil Nadu electricity Board
- Singapore Mercantile Exchange
- Chettinad Cement Corporation Ltd - India
- Malabar Cements Ltd - India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Global Green Power PLC Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parry Sugars Refinery, India
- Eastern Coal Council - USA
- Electricity Authority, New Zealand
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Electricity Generating Authority of Thailand
- Dalmia Cement Bharat India
- Ministry of Finance - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Intertek Mineral Services - Indonesia
- Xindia Steels Limited - India
- Renaissance Capital - South Africa
- Independent Power Producers Association of India
- PNOC Exploration Corporation - Philippines
- Attock Cement Pakistan Limited
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- Romanian Commodities Exchange
- Bharathi Cement Corporation - India
- Ambuja Cements Ltd - India
- The State Trading Corporation of India Ltd
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- GMR Energy Limited - India
- Kaltim Prima Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Rio Tinto Coal - Australia
- PetroVietnam Power Coal Import and Supply Company
- Edison Trading Spa - Italy
- Banpu Public Company Limited - Thailand
- San Jose City I Power Corp, Philippines
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Borneo Indobara - Indonesia
- Goldman Sachs - Singapore
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- ICICI Bank Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- Tata Chemicals Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Formosa Plastics Group - Taiwan
- Metalloyd Limited - United Kingdom
- Meenaskhi Energy Private Limited - India
- Kumho Petrochemical, South Korea
- Uttam Galva Steels Limited - India
- Timah Investasi Mineral - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
- Bahari Cakrawala Sebuku - Indonesia
- Makarim & Taira - Indonesia
- Kideco Jaya Agung - Indonesia
- Marubeni Corporation - India
- Bukit Baiduri Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Savvy Resources Ltd - HongKong
- Simpson Spence & Young - Indonesia
- Planning Commission, India
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- South Luzon Thermal Energy Corporation
- Madhucon Powers Ltd - India
- Barasentosa Lestari - Indonesia
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Wood Mackenzie - Singapore
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Petron Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- Trasteel International SA, Italy
- Bhatia International Limited - India
- Gujarat Sidhee Cement - India
- Bulk Trading Sa - Switzerland
- SMC Global Power, Philippines
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Merrill Lynch Commodities Europe
- Coalindo Energy - Indonesia
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- Parliament of New Zealand
- Baramulti Group, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- New Zealand Coal & Carbon
- Bhushan Steel Limited - India
- European Bulk Services B.V. - Netherlands
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Transport, Egypt
- Thai Mozambique Logistica
- Coal and Oil Company - UAE
- Sarangani Energy Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Meralco Power Generation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement - Thailand
- Larsen & Toubro Limited - India
- Ind-Barath Power Infra Limited - India
- Agrawal Coal Company - India
- Bangladesh Power Developement Board
- Anglo American - United Kingdom
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
- Indian Oil Corporation Limited
- Africa Commodities Group - South Africa
- Kartika Selabumi Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Mintek Dendrill Indonesia
- Coastal Gujarat Power Limited - India
- Aboitiz Power Corporation - Philippines
- Mercator Lines Limited - India
- Maheswari Brothers Coal Limited - India
- Toyota Tsusho Corporation, Japan
- Jindal Steel & Power Ltd - India
- Sojitz Corporation - Japan
- IEA Clean Coal Centre - UK
- ASAPP Information Group - India
- Iligan Light & Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
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