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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, 20 March 19
COAL EXPORT FEARS RESURFACE AS RESTRICTIONS HIT MORE CHINESE PORTS AND AUSTRALIAN PRICES COP A 'BELTING' - ABC
Australian thermal coal exports to China are under increasing pressure, with indications import restrictions are spreading to other key ports.
...
Monday, 18 March 19
A 56,000DWT SHIP FIXED DELIVERY FOR A SINGAPORE TRIP VIA INDONESIA, RE-DELIVERY CHINA, AT $10,000 - BALTIC BRIEFING
Capesize
The Baltic Capesize market shrugged off its recent negative sentiment to post daily incremental improvements over the last week. Pacif ...
Saturday, 16 March 19
AUSTRALIAN COAL STILL FACING CHINESE DELAY - AAP
Australian coal exports to China are still facing delays, with protectionism and environmental checks blamed for the slowdown.
Coal ...
Thursday, 14 March 19
SUPRAMAX: INDO COAL CARGOES GETTING FIXED AT AROUND US$ 12000 TO CHINA - FEARNLEYS
Capesize
Average daily earning still well below operating costs, and owners keep bleeding - but nevertheless finally some bright spots for the ...
Monday, 11 March 19
SUPRAMAX: A 61,000 DWT VESSEL WAS BOOKED SINGAPORE FOR A TRIP VIA INDONESIA TO CHINA AT $10,500 - BALTIC BRIEFING
Capesize
A faint glimmer of hope with the suggestion the market may have finally bottomed out, with owners attempting to resist further cuts in ...
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- Baramulti Group, Indonesia
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Rio Tinto Coal - Australia
- Cigading International Bulk Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Borneo Indobara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CNBM International Corporation - China
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- LBH Netherlands Bv - Netherlands
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Siam City Cement - Thailand
- Bayan Resources Tbk. - Indonesia
- Vedanta Resources Plc - India
- Minerals Council of Australia
- Chamber of Mines of South Africa
- Makarim & Taira - Indonesia
- New Zealand Coal & Carbon
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- White Energy Company Limited
- Barasentosa Lestari - Indonesia
- Mjunction Services Limited - India
- Bhatia International Limited - India
- Wood Mackenzie - Singapore
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Indogreen Group - Indonesia
- Star Paper Mills Limited - India
- Coal and Oil Company - UAE
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Thai Mozambique Logistica
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- Planning Commission, India
- Bhushan Steel Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Indian Oil Corporation Limited
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Grasim Industreis Ltd - India
- Sarangani Energy Corporation, Philippines
- Parliament of New Zealand
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- Formosa Plastics Group - Taiwan
- Eastern Coal Council - USA
- Kideco Jaya Agung - Indonesia
- Gujarat Sidhee Cement - India
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- Maharashtra Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Ministry of Transport, Egypt
- San Jose City I Power Corp, Philippines
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Australian Commodity Traders Exchange
- ICICI Bank Limited - India
- Chettinad Cement Corporation Ltd - India
- Globalindo Alam Lestari - Indonesia
- Commonwealth Bank - Australia
- Timah Investasi Mineral - Indoneisa
- Straits Asia Resources Limited - Singapore
- Gujarat Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- Thiess Contractors Indonesia
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- The University of Queensland
- Semirara Mining Corp, Philippines
- Orica Australia Pty. Ltd.
- Metalloyd Limited - United Kingdom
- Latin American Coal - Colombia
- AsiaOL BioFuels Corp., Philippines
- Sakthi Sugars Limited - India
- Ceylon Electricity Board - Sri Lanka
- Coalindo Energy - Indonesia
- Australian Coal Association
- Energy Development Corp, Philippines
- Wilmar Investment Holdings
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Bahari Cakrawala Sebuku - Indonesia
- Binh Thuan Hamico - Vietnam
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SMG Consultants - Indonesia
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Sinarmas Energy and Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- SMC Global Power, Philippines
- Samtan Co., Ltd - South Korea
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Kepco SPC Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Cement Manufacturers Association - India
- Videocon Industries ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Madhucon Powers Ltd - India
- PTC India Limited - India
- Bangladesh Power Developement Board
- Bukit Asam (Persero) Tbk - Indonesia
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- Agrawal Coal Company - India
- Interocean Group of Companies - India
- Altura Mining Limited, Indonesia
- Simpson Spence & Young - Indonesia
- TeaM Sual Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- Xindia Steels Limited - India
- Salva Resources Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- TNB Fuel Sdn Bhd - Malaysia
- Sojitz Corporation - Japan
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- VISA Power Limited - India
- Indo Tambangraya Megah - Indonesia
- IHS Mccloskey Coal Group - USA
- Electricity Authority, New Zealand
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Semirara Mining and Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Billiton Holdings Pty Ltd - Australia
- India Bulls Power Limited - India
- Larsen & Toubro Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- Savvy Resources Ltd - HongKong
- Indonesian Coal Mining Association
- Holcim Trading Pte Ltd - Singapore
- European Bulk Services B.V. - Netherlands
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Mines - Canada
- Essar Steel Hazira Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement PLC, Thailand
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Vizag Seaport Private Limited - India
- Kumho Petrochemical, South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Standard Chartered Bank - UAE
- Jaiprakash Power Ventures ltd
- Mintek Dendrill Indonesia
- Orica Mining Services - Indonesia
- Edison Trading Spa - Italy
- Heidelberg Cement - Germany
- Krishnapatnam Port Company Ltd. - India
- Bulk Trading Sa - Switzerland
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Mercator Lines Limited - India
- Therma Luzon, Inc, Philippines
- Medco Energi Mining Internasional
- SN Aboitiz Power Inc, Philippines
- McConnell Dowell - Australia
- Neyveli Lignite Corporation Ltd, - India
- Africa Commodities Group - South Africa
- MS Steel International - UAE
- Oldendorff Carriers - Singapore
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Tata Chemicals Ltd - India
- Sree Jayajothi Cements Limited - India
- Ministry of Finance - Indonesia
- Singapore Mercantile Exchange
- GMR Energy Limited - India
- Trasteel International SA, Italy
- Meralco Power Generation, Philippines
- Maheswari Brothers Coal Limited - India
- Aditya Birla Group - India
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
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