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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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Tuesday, 26 February 19
THE RELATIVELY DISAPPOINTING SCENE PORTRAYED IN THE DRY BULK MARKET RIGHT NOW - ALLIED SHIPBROKING
The relatively disappointing scene portrayed in the dry bulk market right now (especially in the Capesize segment) is undoubtedly one of the prevai ...
Friday, 22 February 19
AUSTRALIAN HIGH CV THERMAL COAL PRICES AT 19-MONTH LOW, BUT NOT FOR LONG - WOOD MACKENZIE
The benchmark Newcastle high energy thermal coal price has fallen from US$100/tonne at the turn of the new year to US$88/tonne. Thermal coal has be ...
Wednesday, 20 February 19
EFFECTIVE NOTICES OF ARBITRATION - AVOIDING WASTED COSTS AND A POTENTIALLY TIME-BARRED CLAIM
KNOWLEDGE TO ELEVATE
In a recent case, The Amity [2017], charterers successfully set aside an arbitration award on the basis that ow ...
Wednesday, 20 February 19
SHIPPING MARKET INSIGHT - INERMODAL
Market experts mostly agree that the recent dry bulk market downtrend was caused by seasonal slowdown amid the Chinese New Year celebrations in com ...
Tuesday, 19 February 19
AUSTRALIA'S COAL FUTURE UNDER THREAT AS MORE CHANGES HIT FOSSIL FUELS GLOBALLY - ABC
Two disparate decisions from opposite corners of the world have sounded warnings for the future of Australia’s coal industry.
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- White Energy Company Limited
- Sarangani Energy Corporation, Philippines
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- Bhatia International Limited - India
- Energy Link Ltd, New Zealand
- Makarim & Taira - Indonesia
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Gujarat Sidhee Cement - India
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
- Australian Coal Association
- Indian Energy Exchange, India
- Singapore Mercantile Exchange
- Kaltim Prima Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Directorate Of Revenue Intelligence - India
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- India Bulls Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Indo Tambangraya Megah - Indonesia
- Gujarat Electricity Regulatory Commission - India
- PTC India Limited - India
- Edison Trading Spa - Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Dalmia Cement Bharat India
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Economic Council, Georgia
- Carbofer General Trading SA - India
- Jorong Barutama Greston.PT - Indonesia
- Medco Energi Mining Internasional
- Alfred C Toepfer International GmbH - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Krishnapatnam Port Company Ltd. - India
- Thiess Contractors Indonesia
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- Essar Steel Hazira Ltd - India
- Semirara Mining Corp, Philippines
- Bhushan Steel Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Independent Power Producers Association of India
- Kartika Selabumi Mining - Indonesia
- Kumho Petrochemical, South Korea
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- European Bulk Services B.V. - Netherlands
- Minerals Council of Australia
- Vedanta Resources Plc - India
- Iligan Light & Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Georgia Ports Authority, United States
- Jindal Steel & Power Ltd - India
- McConnell Dowell - Australia
- Miang Besar Coal Terminal - Indonesia
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- Chamber of Mines of South Africa
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- OPG Power Generation Pvt Ltd - India
- Vizag Seaport Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Australian Commodity Traders Exchange
- Intertek Mineral Services - Indonesia
- Antam Resourcindo - Indonesia
- Uttam Galva Steels Limited - India
- Electricity Generating Authority of Thailand
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- Merrill Lynch Commodities Europe
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Coal and Oil Company - UAE
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- Sakthi Sugars Limited - India
- Tata Chemicals Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Goldman Sachs - Singapore
- Ministry of Transport, Egypt
- MS Steel International - UAE
- Bharathi Cement Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- Kobexindo Tractors - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Mining Services - Indonesia
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- Petron Corporation, Philippines
- ASAPP Information Group - India
- Eastern Coal Council - USA
- Lanco Infratech Ltd - India
- London Commodity Brokers - England
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Aditya Birla Group - India
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Meralco Power Generation, Philippines
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Bayan Resources Tbk. - Indonesia
- South Luzon Thermal Energy Corporation
- Pipit Mutiara Jaya. PT, Indonesia
- Coalindo Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- Bukit Baiduri Energy - Indonesia
- Attock Cement Pakistan Limited
- Siam City Cement PLC, Thailand
- Asmin Koalindo Tuhup - Indonesia
- Meenaskhi Energy Private Limited - India
- PNOC Exploration Corporation - Philippines
- Price Waterhouse Coopers - Russia
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Indogreen Group - Indonesia
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Altura Mining Limited, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Sojitz Corporation - Japan
- Indian Oil Corporation Limited
- Posco Energy - South Korea
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- GVK Power & Infra Limited - India
- Interocean Group of Companies - India
- Metalloyd Limited - United Kingdom
- Malabar Cements Ltd - India
- CIMB Investment Bank - Malaysia
- Trasteel International SA, Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- Renaissance Capital - South Africa
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- Chettinad Cement Corporation Ltd - India
- Indika Energy - Indonesia
- Central Java Power - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Billiton Holdings Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- PowerSource Philippines DevCo
- Parliament of New Zealand
- Planning Commission, India
- Coastal Gujarat Power Limited - India
- The University of Queensland
- Borneo Indobara - Indonesia
- Riau Bara Harum - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Kideco Jaya Agung - Indonesia
- Siam City Cement - Thailand
- SN Aboitiz Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Marubeni Corporation - India
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Sical Logistics Limited - India
- Ambuja Cements Ltd - India
- Ceylon Electricity Board - Sri Lanka
- New Zealand Coal & Carbon
- Energy Development Corp, Philippines
- Africa Commodities Group - South Africa
- Agrawal Coal Company - India
- SMC Global Power, Philippines
- Global Business Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
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