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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, 24 April 19
PANAMAX: IN THE EAST, THE MARKET MOVED SIDE-WAYS, WITH FEWER COAL CARGOES FROM INDONESIA PUTTING PRESSURE ON RATES - INTERMODAL
Sentiment in the Dry Bulk market slowly but steadily kept improving last week as Capesize rates remained in recovery mode and Panamax earnings also ...
Wednesday, 24 April 19
SHIPPING MARKET INSIGHT - IS THIS A BANKERS' MARKET? - INTERMODAL
Over the last 10 years, many of the traditional and top lending banks have made the decision to either downsize their portfolios or even exit shipp ...
Monday, 22 April 19
COAL INDIA TO ASK POWER PLANTS TO CUT COAL IMPORTS - DNA
Co to encourage import substitution with domestic supplies at power plants
Surge in coal imports has now forced Coal India Ltd (CIL) ...
Thursday, 18 April 19
BIMCO SEES HARD TIMES AHEAD FOR CAPESIZES
China’s increased use of scrap metal for its production of crude steel is fundamentally critical to the dry bulk shipping industry. Mostly Ca ...
Wednesday, 17 April 19
ONCE AGAIN WE FACED WITH THE SITUATION OF THE DRY BALTIC INDEX BEING BELOW 1,000 POINTS - INTERMODAL
Once again we are faced with the situation of the Dry Baltic Index being below 1,000 points. In a market where the feeling of insecurity is almost ...
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Showing 1411 to 1415 news of total 6871 |
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- Ceylon Electricity Board - Sri Lanka
- Gujarat Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Makarim & Taira - Indonesia
- IEA Clean Coal Centre - UK
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- Semirara Mining and Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Sarangani Energy Corporation, Philippines
- Antam Resourcindo - Indonesia
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Jorong Barutama Greston.PT - Indonesia
- Jindal Steel & Power Ltd - India
- Parry Sugars Refinery, India
- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- GMR Energy Limited - India
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SMG Consultants - Indonesia
- Kepco SPC Power Corporation, Philippines
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Economic Council, Georgia
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- The University of Queensland
- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Bukit Makmur.PT - Indonesia
- Electricity Generating Authority of Thailand
- Australian Coal Association
- Africa Commodities Group - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Larsen & Toubro Limited - India
- Savvy Resources Ltd - HongKong
- Cement Manufacturers Association - India
- Australian Commodity Traders Exchange
- Kapuas Tunggal Persada - Indonesia
- Price Waterhouse Coopers - Russia
- Standard Chartered Bank - UAE
- Barasentosa Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Ministry of Transport, Egypt
- Kalimantan Lumbung Energi - Indonesia
- MS Steel International - UAE
- Altura Mining Limited, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Salva Resources Pvt Ltd - India
- Bharathi Cement Corporation - India
- CNBM International Corporation - China
- Oldendorff Carriers - Singapore
- Global Coal Blending Company Limited - Australia
- Bukit Baiduri Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Straits Asia Resources Limited - Singapore
- Mjunction Services Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- Sical Logistics Limited - India
- Wood Mackenzie - Singapore
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- Bhoruka Overseas - Indonesia
- PNOC Exploration Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Mercator Lines Limited - India
- Minerals Council of Australia
- Gujarat Sidhee Cement - India
- The Treasury - Australian Government
- Ind-Barath Power Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Directorate Of Revenue Intelligence - India
- Lanco Infratech Ltd - India
- Central Electricity Authority - India
- Orica Mining Services - Indonesia
- PowerSource Philippines DevCo
- Petrochimia International Co. Ltd.- Taiwan
- Baramulti Group, Indonesia
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Wilmar Investment Holdings
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Port Waratah Coal Services - Australia
- Interocean Group of Companies - India
- New Zealand Coal & Carbon
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- Meenaskhi Energy Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Heidelberg Cement - Germany
- Ministry of Mines - Canada
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- Electricity Authority, New Zealand
- Borneo Indobara - Indonesia
- ICICI Bank Limited - India
- Miang Besar Coal Terminal - Indonesia
- Grasim Industreis Ltd - India
- Global Business Power Corporation, Philippines
- Renaissance Capital - South Africa
- European Bulk Services B.V. - Netherlands
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- GVK Power & Infra Limited - India
- TeaM Sual Corporation - Philippines
- San Jose City I Power Corp, Philippines
- White Energy Company Limited
- Rashtriya Ispat Nigam Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- Karaikal Port Pvt Ltd - India
- Commonwealth Bank - Australia
- Coastal Gujarat Power Limited - India
- Bhatia International Limited - India
- Therma Luzon, Inc, Philippines
- Siam City Cement - Thailand
- Bulk Trading Sa - Switzerland
- Coalindo Energy - Indonesia
- India Bulls Power Limited - India
- Romanian Commodities Exchange
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- Merrill Lynch Commodities Europe
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- Chamber of Mines of South Africa
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- Binh Thuan Hamico - Vietnam
- Essar Steel Hazira Ltd - India
- McConnell Dowell - Australia
- ASAPP Information Group - India
- Indian Oil Corporation Limited
- Ministry of Finance - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- SN Aboitiz Power Inc, Philippines
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- South Luzon Thermal Energy Corporation
- Manunggal Multi Energi - Indonesia
- Kumho Petrochemical, South Korea
- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Georgia Ports Authority, United States
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- Chettinad Cement Corporation Ltd - India
- Vizag Seaport Private Limited - India
- PTC India Limited - India
- Sakthi Sugars Limited - India
- LBH Netherlands Bv - Netherlands
- Thai Mozambique Logistica
- Goldman Sachs - Singapore
- Edison Trading Spa - Italy
- Formosa Plastics Group - Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Ambuja Cements Ltd - India
- Anglo American - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- CIMB Investment Bank - Malaysia
- Intertek Mineral Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Uttam Galva Steels Limited - India
- Bhushan Steel Limited - India
- Toyota Tsusho Corporation, Japan
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
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