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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, 10 April 19
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- Binh Thuan Hamico - Vietnam
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Semirara Mining Corp, Philippines
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Tata Chemicals Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Trasteel International SA, Italy
- Bangladesh Power Developement Board
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Power Finance Corporation Ltd., India
- Krishnapatnam Port Company Ltd. - India
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- Wood Mackenzie - Singapore
- Maharashtra Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Semirara Mining and Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Sojitz Corporation - Japan
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Offshore Bulk Terminal Pte Ltd, Singapore
- Edison Trading Spa - Italy
- Holcim Trading Pte Ltd - Singapore
- Kepco SPC Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- Manunggal Multi Energi - Indonesia
- The University of Queensland
- Latin American Coal - Colombia
- Pipit Mutiara Jaya. PT, Indonesia
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- Global Business Power Corporation, Philippines
- Economic Council, Georgia
- Mercator Lines Limited - India
- Anglo American - United Kingdom
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Mintek Dendrill Indonesia
- Essar Steel Hazira Ltd - India
- Oldendorff Carriers - Singapore
- CNBM International Corporation - China
- Altura Mining Limited, Indonesia
- Australian Commodity Traders Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Deloitte Consulting - India
- Bulk Trading Sa - Switzerland
- Bharathi Cement Corporation - India
- Indogreen Group - Indonesia
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- Wilmar Investment Holdings
- Savvy Resources Ltd - HongKong
- AsiaOL BioFuels Corp., Philippines
- Bukit Makmur.PT - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- PTC India Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Indo Tambangraya Megah - Indonesia
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- Madhucon Powers Ltd - India
- Chamber of Mines of South Africa
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- Rio Tinto Coal - Australia
- Directorate General of MIneral and Coal - Indonesia
- Indonesian Coal Mining Association
- Malabar Cements Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- MS Steel International - UAE
- GMR Energy Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Xindia Steels Limited - India
- Videocon Industries ltd - India
- Lanco Infratech Ltd - India
- Renaissance Capital - South Africa
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Salva Resources Pvt Ltd - India
- India Bulls Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Antam Resourcindo - Indonesia
- Grasim Industreis Ltd - India
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- Siam City Cement - Thailand
- Baramulti Group, Indonesia
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- CIMB Investment Bank - Malaysia
- Coastal Gujarat Power Limited - India
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- McConnell Dowell - Australia
- New Zealand Coal & Carbon
- Electricity Generating Authority of Thailand
- Jindal Steel & Power Ltd - India
- Parry Sugars Refinery, India
- Ministry of Mines - Canada
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- White Energy Company Limited
- Bhatia International Limited - India
- VISA Power Limited - India
- SMG Consultants - Indonesia
- The Treasury - Australian Government
- Coal and Oil Company - UAE
- Sinarmas Energy and Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Goldman Sachs - Singapore
- Billiton Holdings Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Maheswari Brothers Coal Limited - India
- Electricity Authority, New Zealand
- Parliament of New Zealand
- Cement Manufacturers Association - India
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- Standard Chartered Bank - UAE
- Thiess Contractors Indonesia
- Meralco Power Generation, Philippines
- Karaikal Port Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- South Luzon Thermal Energy Corporation
- Georgia Ports Authority, United States
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Vizag Seaport Private Limited - India
- ICICI Bank Limited - India
- LBH Netherlands Bv - Netherlands
- Vedanta Resources Plc - India
- Barasentosa Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Sidhee Cement - India
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- GVK Power & Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Kaltim Prima Coal - Indonesia
- Uttam Galva Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- SMC Global Power, Philippines
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Makarim & Taira - Indonesia
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- PowerSource Philippines DevCo
- Energy Link Ltd, New Zealand
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Planning Commission, India
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- The State Trading Corporation of India Ltd
- Toyota Tsusho Corporation, Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Attock Cement Pakistan Limited
- Jorong Barutama Greston.PT - Indonesia
- Orica Australia Pty. Ltd.
- Ambuja Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Sical Logistics Limited - India
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- Posco Energy - South Korea
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- Aboitiz Power Corporation - Philippines
- Central Java Power - Indonesia
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