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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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Friday, 07 June 19
KOEN INVITED BIDS FOR 1.87 MILLION TONS OF COAL FOR JULY - OCTOBER 2019 DELIVERY
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 1,700,000 to 1,870,000 Metric Tons ...
Wednesday, 05 June 19
SHIPPING MARKET INSIGHT - INTERMODAL
The first semester of 2019 started as a fairly positive semester for the offshore sector whilst there was a recovery on crude prices, as well as a ...
Tuesday, 04 June 19
MARPOL ANNEX VI - SULPHUR CAP 2020 - DEMYSTIFYING THE FONAR - SKULD
KNOWLEDGE TO ELEVATE
Fuel Oil Non-Availability Report (FONAR) is primarily a discretionary tool for a Member State to lessen the breach of MAR ...
Monday, 03 June 19
SUPRAMAX: A 61,000 TONNER OPEN NORTH CHINA, FIXING A TRIP VIA INDONESIA, REDELIVERY SOUTHEAST ASIA AT $7,500 - BALTIC BRIEFING
Capesize
The market continued its steady ascent over the past week to improved levels. The TC average opened the previous week at $12,243 and c ...
Wednesday, 29 May 19
SHIPPING MARKET INSIGHT - INTERMODAL
Reflecting on the first quarter of 2019, the product tanker market was healthy, with average earnings significantly up compared to the first quarte ...
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- Bayan Resources Tbk. - Indonesia
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- Karbindo Abesyapradhi - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Chamber of Mines of South Africa
- Chettinad Cement Corporation Ltd - India
- Meenaskhi Energy Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Therma Luzon, Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Kaltim Prima Coal - Indonesia
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Mining Services - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Edison Trading Spa - Italy
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Videocon Industries ltd - India
- Jindal Steel & Power Ltd - India
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Central Java Power - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Renaissance Capital - South Africa
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Krishnapatnam Port Company Ltd. - India
- The Treasury - Australian Government
- Dalmia Cement Bharat India
- Electricity Authority, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- CNBM International Corporation - China
- Vizag Seaport Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Larsen & Toubro Limited - India
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- Tamil Nadu electricity Board
- GAC Shipping (India) Pvt Ltd
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- PTC India Limited - India
- Asmin Koalindo Tuhup - Indonesia
- SMG Consultants - Indonesia
- Parliament of New Zealand
- Mjunction Services Limited - India
- Coalindo Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Meralco Power Generation, Philippines
- White Energy Company Limited
- Intertek Mineral Services - Indonesia
- McConnell Dowell - Australia
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- Wood Mackenzie - Singapore
- Grasim Industreis Ltd - India
- Bangladesh Power Developement Board
- Baramulti Group, Indonesia
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- Barasentosa Lestari - Indonesia
- Heidelberg Cement - Germany
- The University of Queensland
- Siam City Cement - Thailand
- Indika Energy - Indonesia
- Commonwealth Bank - Australia
- Coastal Gujarat Power Limited - India
- Iligan Light & Power Inc, Philippines
- Ministry of Mines - Canada
- Port Waratah Coal Services - Australia
- Toyota Tsusho Corporation, Japan
- Bhatia International Limited - India
- Semirara Mining and Power Corporation, Philippines
- Uttam Galva Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Samtan Co., Ltd - South Korea
- Indo Tambangraya Megah - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parry Sugars Refinery, India
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Makarim & Taira - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Kobexindo Tractors - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Singapore Mercantile Exchange
- Sojitz Corporation - Japan
- Siam City Cement PLC, Thailand
- Ministry of Transport, Egypt
- International Coal Ventures Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- IHS Mccloskey Coal Group - USA
- Star Paper Mills Limited - India
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Merrill Lynch Commodities Europe
- Ind-Barath Power Infra Limited - India
- Borneo Indobara - Indonesia
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Petron Corporation, Philippines
- ICICI Bank Limited - India
- Attock Cement Pakistan Limited
- GMR Energy Limited - India
- Georgia Ports Authority, United States
- Riau Bara Harum - Indonesia
- Medco Energi Mining Internasional
- Indogreen Group - Indonesia
- PNOC Exploration Corporation - Philippines
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- London Commodity Brokers - England
- Leighton Contractors Pty Ltd - Australia
- Posco Energy - South Korea
- Romanian Commodities Exchange
- Mercuria Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Carbofer General Trading SA - India
- Agrawal Coal Company - India
- SMC Global Power, Philippines
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Oldendorff Carriers - Singapore
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- Interocean Group of Companies - India
- Kartika Selabumi Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- MS Steel International - UAE
- The State Trading Corporation of India Ltd
- Energy Development Corp, Philippines
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- TNB Fuel Sdn Bhd - Malaysia
- Indian Oil Corporation Limited
- Kumho Petrochemical, South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- Trasteel International SA, Italy
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Global Business Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Planning Commission, India
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Xindia Steels Limited - India
- Indonesian Coal Mining Association
- PetroVietnam Power Coal Import and Supply Company
- New Zealand Coal & Carbon
- Aboitiz Power Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Mercator Lines Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Vedanta Resources Plc - India
- Bukit Makmur.PT - Indonesia
- VISA Power Limited - India
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Neyveli Lignite Corporation Ltd, - India
- Jaiprakash Power Ventures ltd
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- AsiaOL BioFuels Corp., Philippines
- Central Electricity Authority - India
- San Jose City I Power Corp, Philippines
- Independent Power Producers Association of India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
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