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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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Saturday, 15 June 19
SUPRAMAX: A 58,000-TONNER, OPEN QINGDAO, WAS BOOKED TO REDELIVER IN EAST COAST INDIA AT $6,500 - BALTIC BRIEFING
Capesize
The market closed on a quiet Friday last week after a few hectic days of mid-week trading. Trade routes from Brazil to the Far East we ...
Friday, 14 June 19
PANAMAX: OUTLOOK IS MIXED - FERNLEYS
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Sentiment changed to a more nervous tone as pacific cargo volumes failed to deliver as expected, however latest activity indicates res ...
Friday, 14 June 19
ELECTRONIC (PAPERLESS) TRADING - SKULD
KNOWLEDGE TO ELEVATE
Electronic Shipping Solutions: Bolero International Ltd, E-Title Authority Pte Ltd, Global Share S.A. (edoxOnline platfor ...
Wednesday, 12 June 19
KOSPO INVITES BIDS FOR 140,000 MT OF 4,600 NCV COAL FOR SEP. 2019 LOADING
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 140,000 MT of minimum 4,600 kcal/kg NCV coal ...
Wednesday, 12 June 19
IMO 2020 - COUNTDOWN TO 1 JANUARY 2020 -HOW WILL THE CHANGES AFFECT REFINING AND SHIPPING? - WOOD MACKENZIE
We know that the IMO’s regulations represent the biggest step change the shipping industry has ever seen and the implications will be felt th ...
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- Indo Tambangraya Megah - Indonesia
- Metalloyd Limited - United Kingdom
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Ind-Barath Power Infra Limited - India
- Goldman Sachs - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhatia International Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- Formosa Plastics Group - Taiwan
- Bhushan Steel Limited - India
- Toyota Tsusho Corporation, Japan
- Carbofer General Trading SA - India
- PTC India Limited - India
- Agrawal Coal Company - India
- Coalindo Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Malabar Cements Ltd - India
- Meenaskhi Energy Private Limited - India
- Parliament of New Zealand
- SMC Global Power, Philippines
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Siam City Cement - Thailand
- Kartika Selabumi Mining - Indonesia
- Sical Logistics Limited - India
- Economic Council, Georgia
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Therma Luzon, Inc, Philippines
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Bukit Baiduri Energy - Indonesia
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Dalmia Cement Bharat India
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Pipit Mutiara Jaya. PT, Indonesia
- PowerSource Philippines DevCo
- Sojitz Corporation - Japan
- Binh Thuan Hamico - Vietnam
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- Standard Chartered Bank - UAE
- Essar Steel Hazira Ltd - India
- Xindia Steels Limited - India
- Ministry of Mines - Canada
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Edison Trading Spa - Italy
- Larsen & Toubro Limited - India
- Africa Commodities Group - South Africa
- Eastern Coal Council - USA
- Indian Oil Corporation Limited
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Jindal Steel & Power Ltd - India
- Heidelberg Cement - Germany
- Deloitte Consulting - India
- Holcim Trading Pte Ltd - Singapore
- Ministry of Finance - Indonesia
- Savvy Resources Ltd - HongKong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Singapore Mercantile Exchange
- VISA Power Limited - India
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- Simpson Spence & Young - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Global Business Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Grasim Industreis Ltd - India
- Oldendorff Carriers - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Vizag Seaport Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- IHS Mccloskey Coal Group - USA
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- GMR Energy Limited - India
- Bangladesh Power Developement Board
- Videocon Industries ltd - India
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Jorong Barutama Greston.PT - Indonesia
- Semirara Mining Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- Krishnapatnam Port Company Ltd. - India
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Marubeni Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Planning Commission, India
- Indonesian Coal Mining Association
- Power Finance Corporation Ltd., India
- Sarangani Energy Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Wilmar Investment Holdings
- Ceylon Electricity Board - Sri Lanka
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Thai Mozambique Logistica
- Australian Coal Association
- Altura Mining Limited, Indonesia
- ASAPP Information Group - India
- Tamil Nadu electricity Board
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- Borneo Indobara - Indonesia
- Star Paper Mills Limited - India
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- India Bulls Power Limited - India
- Ambuja Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Mercator Lines Limited - India
- Mjunction Services Limited - India
- The University of Queensland
- The Treasury - Australian Government
- Coastal Gujarat Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karaikal Port Pvt Ltd - India
- SMG Consultants - Indonesia
- Electricity Generating Authority of Thailand
- Merrill Lynch Commodities Europe
- Bahari Cakrawala Sebuku - Indonesia
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Vedanta Resources Plc - India
- AsiaOL BioFuels Corp., Philippines
- Indogreen Group - Indonesia
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- Independent Power Producers Association of India
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Lanco Infratech Ltd - India
- Coal and Oil Company - UAE
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- CIMB Investment Bank - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Latin American Coal - Colombia
- Kobexindo Tractors - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Jaiprakash Power Ventures ltd
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Cement Manufacturers Association - India
- Makarim & Taira - Indonesia
- Sree Jayajothi Cements Limited - India
- Wood Mackenzie - Singapore
- Port Waratah Coal Services - Australia
- Salva Resources Pvt Ltd - India
- Tata Chemicals Ltd - India
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Minerals Council of Australia
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