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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, 06 April 19
SUPRAMAX: IT WAS A POOR WEEK OVERALL FOR THE BALTIC SUPRAMAX INDEX, WHICH LOST GROUND - BALTIC BRIEFING
Capesize
The Capesize market over the past week looked to have found a floor on Tuesday with the BCI 5TC at $3460 before firming into the rest ...
Thursday, 04 April 19
OVERSUPPLY STILL MAJOR CHALLENGE WARNS ICS
Speaking in Istanbul, Simon Bennett, Deputy Secretary General of the International Chamber of Shipping (ICS) warned that avoiding overcapacity and ...
Thursday, 04 April 19
GLENCORE, TOHOKU ELECTRIC SET COAL CONTRACT PRICE AT $94.75/T - SOURCE, REUTERS REPORTED
Global miner Glencore and Japan’s Tohoku Electric Power agreed on a price of $94.75 per tonne for supplies of thermal coal from Australia for ...
Monday, 01 April 19
FORCE MAJEURE SUCCESS NOT A SEA CHANGE - BALTIC EXCHANGE
KNOWLEDGE TO ELEVATE
It is difficult to successfully argue that contractual performance has been prevented or delayed by force majeure. This i ...
Monday, 01 April 19
AUSTRALIAN COAL AT RISK FROM CHINA MOVE, WARNS GOVERNMENT REPORT - SYDNEY MORNING HERALD
A new government report warns China’s restrictions on coal imports is the number one risk for Australian coal this year and could lead to a s ...
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- Medco Energi Mining Internasional
- Marubeni Corporation - India
- Meenaskhi Energy Private Limited - India
- Madhucon Powers Ltd - India
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Samtan Co., Ltd - South Korea
- Planning Commission, India
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Barasentosa Lestari - Indonesia
- Carbofer General Trading SA - India
- Independent Power Producers Association of India
- The State Trading Corporation of India Ltd
- Chamber of Mines of South Africa
- Sical Logistics Limited - India
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Makarim & Taira - Indonesia
- Sarangani Energy Corporation, Philippines
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Australian Coal Association
- Meralco Power Generation, Philippines
- Mjunction Services Limited - India
- London Commodity Brokers - England
- Videocon Industries ltd - India
- Tata Chemicals Ltd - India
- Sojitz Corporation - Japan
- Gujarat Mineral Development Corp Ltd - India
- PTC India Limited - India
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Electricity Authority, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Eastern Energy - Thailand
- Thai Mozambique Logistica
- Alfred C Toepfer International GmbH - Germany
- Jorong Barutama Greston.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Indo Tambangraya Megah - Indonesia
- McConnell Dowell - Australia
- Toyota Tsusho Corporation, Japan
- Holcim Trading Pte Ltd - Singapore
- Rio Tinto Coal - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Central Java Power - Indonesia
- Indika Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Salva Resources Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Simpson Spence & Young - Indonesia
- CIMB Investment Bank - Malaysia
- IEA Clean Coal Centre - UK
- Globalindo Alam Lestari - Indonesia
- Commonwealth Bank - Australia
- Oldendorff Carriers - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Straits Asia Resources Limited - Singapore
- Manunggal Multi Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- Rashtriya Ispat Nigam Limited - India
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Star Paper Mills Limited - India
- Lanco Infratech Ltd - India
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Aboitiz Power Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Cement Manufacturers Association - India
- GMR Energy Limited - India
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- GVK Power & Infra Limited - India
- South Luzon Thermal Energy Corporation
- Neyveli Lignite Corporation Ltd, - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aditya Birla Group - India
- Kumho Petrochemical, South Korea
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Altura Mining Limited, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Xindia Steels Limited - India
- Mercuria Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Agrawal Coal Company - India
- The Treasury - Australian Government
- The University of Queensland
- Energy Link Ltd, New Zealand
- Standard Chartered Bank - UAE
- TeaM Sual Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- Baramulti Group, Indonesia
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- Deloitte Consulting - India
- Kobexindo Tractors - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- Binh Thuan Hamico - Vietnam
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- Global Business Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Coal and Oil Company - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Bulk Trading Sa - Switzerland
- Anglo American - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- Karaikal Port Pvt Ltd - India
- Power Finance Corporation Ltd., India
- New Zealand Coal & Carbon
- Heidelberg Cement - Germany
- Vizag Seaport Private Limited - India
- Posco Energy - South Korea
- Bhatia International Limited - India
- SMC Global Power, Philippines
- AsiaOL BioFuels Corp., Philippines
- Romanian Commodities Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- GAC Shipping (India) Pvt Ltd
- Renaissance Capital - South Africa
- Trasteel International SA, Italy
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Bhushan Steel Limited - India
- Central Electricity Authority - India
- Attock Cement Pakistan Limited
- Global Green Power PLC Corporation, Philippines
- Sakthi Sugars Limited - India
- Global Coal Blending Company Limited - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- Savvy Resources Ltd - HongKong
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- European Bulk Services B.V. - Netherlands
- CNBM International Corporation - China
- Bukit Baiduri Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Energy Development Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Wilmar Investment Holdings
- Riau Bara Harum - Indonesia
- ASAPP Information Group - India
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
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