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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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Sunday, 23 June 19
SUPRAMAX: A 56,000-DWT WAS FIXED FROM INDONESIA TO VIETNAM AT $10,000 - BALTIC BRIEFING
Capesize
The story over the past week has been largely Atlantic dominated as the basin’s uniquely volatile characteristics came into play ...
Saturday, 22 June 19
OPEC'S BATTLE FOR CONTROL OF THE OIL MARKET - WOOD MACKENZIE
Oil supply is confounding expectations. We have just raised our forecasts for non-OPEC production, the latest in a series of incremental increases. ...
Friday, 21 June 19
INDONESIA'S BAYAN RESOURCES SIGNED A COAL SUPPLY AGREEMENT WITH THE BANGLADESH BCPCL TO SUPPLY 23 MILLION TONS OF COAL FOR 10 YEARS
On Monday, 17th June 2019, PT. Bayan Resources signed a Coal supply Agreement with the Bangladesh- China Power Company (Pvt.) Limited. BCPCL is a j ...
Thursday, 20 June 19
BUMI RESOURCES EXPECTS TO SELL 42 MILLION TONS OF COAL IN FIRST HALF - JAKARTA POST
PT Bumi Resources (BUMI), Indonesia's largest thermal coal miner, expects to close the first half of this year with coal sales of 42 million to ...
Tuesday, 18 June 19
TANKER SHIPPING: WHILE WE WAIT FOR 2020 TO KICK IN, IT'S ALL ABOUT POLITICS - BIMCO
Demand drivers and freight rates
Iran, Libya and Venezuela face export limitations because of sanctions and internal political troubles. At the s ...
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- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Energy Link Ltd, New Zealand
- Bhatia International Limited - India
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Ind-Barath Power Infra Limited - India
- Bhushan Steel Limited - India
- Ambuja Cements Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- ASAPP Information Group - India
- The Treasury - Australian Government
- Meralco Power Generation, Philippines
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Dalmia Cement Bharat India
- CIMB Investment Bank - Malaysia
- Krishnapatnam Port Company Ltd. - India
- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- Miang Besar Coal Terminal - Indonesia
- Latin American Coal - Colombia
- Bukit Baiduri Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Salva Resources Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Formosa Plastics Group - Taiwan
- Eastern Energy - Thailand
- Timah Investasi Mineral - Indoneisa
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- New Zealand Coal & Carbon
- Attock Cement Pakistan Limited
- Madhucon Powers Ltd - India
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Barasentosa Lestari - Indonesia
- Lanco Infratech Ltd - India
- McConnell Dowell - Australia
- Coalindo Energy - Indonesia
- Commonwealth Bank - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- Petron Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- Renaissance Capital - South Africa
- Vizag Seaport Private Limited - India
- Videocon Industries ltd - India
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Indian Oil Corporation Limited
- Siam City Cement PLC, Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Rashtriya Ispat Nigam Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Electricity Generating Authority of Thailand
- Sical Logistics Limited - India
- Semirara Mining Corp, Philippines
- Central Electricity Authority - India
- MS Steel International - UAE
- India Bulls Power Limited - India
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Maharashtra Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- Mercuria Energy - Indonesia
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Grasim Industreis Ltd - India
- The University of Queensland
- PetroVietnam Power Coal Import and Supply Company
- Parry Sugars Refinery, India
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- Cigading International Bulk Terminal - Indonesia
- Parliament of New Zealand
- London Commodity Brokers - England
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- IEA Clean Coal Centre - UK
- Australian Commodity Traders Exchange
- South Luzon Thermal Energy Corporation
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Global Coal Blending Company Limited - Australia
- Gujarat Sidhee Cement - India
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Bangladesh Power Developement Board
- Trasteel International SA, Italy
- Ministry of Mines - Canada
- ICICI Bank Limited - India
- Chamber of Mines of South Africa
- Bharathi Cement Corporation - India
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- Global Business Power Corporation, Philippines
- Marubeni Corporation - India
- PNOC Exploration Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Bayan Resources Tbk. - Indonesia
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- Price Waterhouse Coopers - Russia
- Therma Luzon, Inc, Philippines
- Orica Mining Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- San Jose City I Power Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Indonesian Coal Mining Association
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- Eastern Coal Council - USA
- Metalloyd Limited - United Kingdom
- Baramulti Group, Indonesia
- Essar Steel Hazira Ltd - India
- Rio Tinto Coal - Australia
- GN Power Mariveles Coal Plant, Philippines
- Billiton Holdings Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Mintek Dendrill Indonesia
- Xindia Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Independent Power Producers Association of India
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- TeaM Sual Corporation - Philippines
- Oldendorff Carriers - Singapore
- Uttam Galva Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Electricity Authority, New Zealand
- Karaikal Port Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- SMG Consultants - Indonesia
- Central Java Power - Indonesia
- Indika Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- PTC India Limited - India
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- Heidelberg Cement - Germany
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Merrill Lynch Commodities Europe
- Thai Mozambique Logistica
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Sinarmas Energy and Mining - Indonesia
- Cement Manufacturers Association - India
- Kumho Petrochemical, South Korea
- White Energy Company Limited
- Kartika Selabumi Mining - Indonesia
- Jindal Steel & Power Ltd - India
- Deloitte Consulting - India
- Posco Energy - South Korea
- Alfred C Toepfer International GmbH - Germany
- Bahari Cakrawala Sebuku - Indonesia
- SMC Global Power, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Anglo American - United Kingdom
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Global Green Power PLC Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
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