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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, 08 March 19
KOMIPO INVITES BIDS FOR 2.6 MILLION TONS OF AUSTRALIAN 5700 NAR COAL FOR FIVE YEARS
South Korea state-owned utility Korea Midland Power (KOMIPO) issued a tender for 520,000 MT of min. 5700 NAR coal of Australian origin to be burnt ...
Friday, 08 March 19
CHINA'S COAL DEMAND FORECAST TO DROP SLOWLY - YONHAP
China’s coal demand is expected to fall at a snail’s pace over the next 20 years due to the country’s preference for the cheap fo ...
Thursday, 07 March 19
INDONESIAN COAL PRICE REFERENCE PLUNGE TO LOWEST IN SEVEN MONTHS
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...
Wednesday, 06 March 19
KOSPO INVITES BIDS FOR 80,000 MT OF 3800 NCV COAL FOR 21 - 30 MARCH, 2019 LOADING
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 80,000 MT of min 3,800 kcal/kg NCV low calor ...
Wednesday, 06 March 19
KOREA SOUTHERN POWER CO INVITES BIDS FOR 980,000 MT OF 4600 NCV COAL FOR THREE YEARS
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 320,000 MT of min 4,600 kcal/kg NCV low calo ...
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- Australian Coal Association
- PetroVietnam Power Coal Import and Supply Company
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- SN Aboitiz Power Inc, Philippines
- New Zealand Coal & Carbon
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Malabar Cements Ltd - India
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Economic Council, Georgia
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Siam City Cement - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- GMR Energy Limited - India
- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- TeaM Sual Corporation - Philippines
- Tamil Nadu electricity Board
- The University of Queensland
- Formosa Plastics Group - Taiwan
- Dalmia Cement Bharat India
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Indonesian Coal Mining Association
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Altura Mining Limited, Indonesia
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- Central Electricity Authority - India
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Billiton Holdings Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Bangladesh Power Developement Board
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- Ceylon Electricity Board - Sri Lanka
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- McConnell Dowell - Australia
- The Treasury - Australian Government
- Jindal Steel & Power Ltd - India
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- Manunggal Multi Energi - Indonesia
- Attock Cement Pakistan Limited
- Kobexindo Tractors - Indoneisa
- Indogreen Group - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Merrill Lynch Commodities Europe
- Electricity Authority, New Zealand
- Bayan Resources Tbk. - Indonesia
- MS Steel International - UAE
- Minerals Council of Australia
- Coal and Oil Company - UAE
- Goldman Sachs - Singapore
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- Asmin Koalindo Tuhup - Indonesia
- Bharathi Cement Corporation - India
- International Coal Ventures Pvt Ltd - India
- Aditya Birla Group - India
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Anglo American - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Romanian Commodities Exchange
- Metalloyd Limited - United Kingdom
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Holcim Trading Pte Ltd - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- IHS Mccloskey Coal Group - USA
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Trasteel International SA, Italy
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- PNOC Exploration Corporation - Philippines
- Indian Energy Exchange, India
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- SMC Global Power, Philippines
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Coastal Gujarat Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement PLC, Thailand
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Toyota Tsusho Corporation, Japan
- Ministry of Mines - Canada
- Larsen & Toubro Limited - India
- Mercator Lines Limited - India
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Indika Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Deloitte Consulting - India
- Videocon Industries ltd - India
- Meenaskhi Energy Private Limited - India
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
- Miang Besar Coal Terminal - Indonesia
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Savvy Resources Ltd - HongKong
- Ambuja Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Antam Resourcindo - Indonesia
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Wilmar Investment Holdings
- Parliament of New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Rio Tinto Coal - Australia
- Independent Power Producers Association of India
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- Intertek Mineral Services - Indonesia
- White Energy Company Limited
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- VISA Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Sree Jayajothi Cements Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Commonwealth Bank - Australia
- Marubeni Corporation - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- LBH Netherlands Bv - Netherlands
- CIMB Investment Bank - Malaysia
- Iligan Light & Power Inc, Philippines
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Jaiprakash Power Ventures ltd
- Maharashtra Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- The State Trading Corporation of India Ltd
- GVK Power & Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- ASAPP Information Group - India
- Krishnapatnam Port Company Ltd. - India
- Central Java Power - Indonesia
- Riau Bara Harum - Indonesia
- Posco Energy - South Korea
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- OPG Power Generation Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Sindya Power Generating Company Private Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Borneo Indobara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
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