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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, 12 June 19
SHIPPING MARKET INSIGHT - INTERMODAL
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KNOWLEDGE TO ELEVATE
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SUPRAMAX: ASIA LOST GROUND; THE INDIAN OCEAN SAW SLOWER ACTIVITY - BALTIC BRIEFING
Capesize
The market continued in an unusually steady ascent last week. With no major news in the market, each day improved on the last, breakin ...
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- Georgia Ports Authority, United States
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- Latin American Coal - Colombia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining Corp, Philippines
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
- South Luzon Thermal Energy Corporation
- Africa Commodities Group - South Africa
- Posco Energy - South Korea
- Bangladesh Power Developement Board
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Sojitz Corporation - Japan
- Singapore Mercantile Exchange
- Wood Mackenzie - Singapore
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Vedanta Resources Plc - India
- Ministry of Transport, Egypt
- Metalloyd Limited - United Kingdom
- Jaiprakash Power Ventures ltd
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- Ministry of Finance - Indonesia
- Tata Chemicals Ltd - India
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Deloitte Consulting - India
- Asmin Koalindo Tuhup - Indonesia
- White Energy Company Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- VISA Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Borneo Indobara - Indonesia
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Merrill Lynch Commodities Europe
- Australian Commodity Traders Exchange
- Samtan Co., Ltd - South Korea
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Edison Trading Spa - Italy
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Essar Steel Hazira Ltd - India
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- IEA Clean Coal Centre - UK
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- Siam City Cement PLC, Thailand
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Videocon Industries ltd - India
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Coal and Oil Company - UAE
- International Coal Ventures Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Kapuas Tunggal Persada - Indonesia
- Petron Corporation, Philippines
- Parliament of New Zealand
- Xindia Steels Limited - India
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Marubeni Corporation - India
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Bukit Baiduri Energy - Indonesia
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- MS Steel International - UAE
- Antam Resourcindo - Indonesia
- Kartika Selabumi Mining - Indonesia
- Iligan Light & Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Heidelberg Cement - Germany
- Krishnapatnam Port Company Ltd. - India
- TeaM Sual Corporation - Philippines
- The Treasury - Australian Government
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ambuja Cements Ltd - India
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Pendopo Energi Batubara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sarangani Energy Corporation, Philippines
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- ICICI Bank Limited - India
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Mercator Lines Limited - India
- Price Waterhouse Coopers - Russia
- Kohat Cement Company Ltd. - Pakistan
- Bukit Makmur.PT - Indonesia
- Star Paper Mills Limited - India
- IHS Mccloskey Coal Group - USA
- Medco Energi Mining Internasional
- Rashtriya Ispat Nigam Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Indian Oil Corporation Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bayan Resources Tbk. - Indonesia
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- Energy Development Corp, Philippines
- San Jose City I Power Corp, Philippines
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Makarim & Taira - Indonesia
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- SN Aboitiz Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Interocean Group of Companies - India
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- New Zealand Coal & Carbon
- Maheswari Brothers Coal Limited - India
- Coalindo Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Mjunction Services Limited - India
- GMR Energy Limited - India
- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- PowerSource Philippines DevCo
- Bhushan Steel Limited - India
- Global Coal Blending Company Limited - Australia
- Jorong Barutama Greston.PT - Indonesia
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Indo Tambangraya Megah - Indonesia
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- GVK Power & Infra Limited - India
- Renaissance Capital - South Africa
- Planning Commission, India
- Tamil Nadu electricity Board
- Maharashtra Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Anglo American - United Kingdom
- Commonwealth Bank - Australia
- The University of Queensland
- Cement Manufacturers Association - India
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Thiess Contractors Indonesia
- Mintek Dendrill Indonesia
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- Directorate General of MIneral and Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bharathi Cement Corporation - India
- Formosa Plastics Group - Taiwan
- Mercuria Energy - Indonesia
- Ministry of Mines - Canada
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- Siam City Cement - Thailand
- Kaltim Prima Coal - Indonesia
- Manunggal Multi Energi - Indonesia
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