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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, 19 February 19
FAST DEPLETING COAL RESERVES COULD PUSH UP ENERGY PRICES, CAUTIONS EXPERT - THE HINDU BUSINESS LINE
The fast depletion of coal, a strategic resource and India’s fuel of choice currently, has huge implications for energy costs, according to K ...
Monday, 18 February 19
INDIA'S COAL IMPORT FALLS TO 17.25 MT IN JANUARY - PTI
Coal imports saw a decline in January FY 2019 to 17.25 MT from 19.59 MT in the same month of the previous fiscal, according to a report by mjunctio ...
Monday, 18 February 19
THE ROLE OF COAL IN INDIA'S ENERGY AMBITIONS - WCA
India is the world’s second most populous country and figures among the world’s most rapidly growing economies.
The Sout ...
Saturday, 16 February 19
COALTRANS CHINA 2019, CHINA'S LARGEST COAL INDUSTRY GATHERING
Press Release: Coaltrans China 2019 | With the import ban likely to be lifted, it’s time for you to meet your potentia ...
Wednesday, 13 February 19
MALAYSIA WAS THE REGION'S LARGEST COAL IMPORTER WITH 34 MT IN 2018, UP 25% Y-O-Y
Although coal market in 2018 started with strong prices, starting in the beginning of the second half of 2018, the international spot prices for co ...
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- Aboitiz Power Corporation - Philippines
- Goldman Sachs - Singapore
- Videocon Industries ltd - India
- Toyota Tsusho Corporation, Japan
- Semirara Mining Corp, Philippines
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- Bhatia International Limited - India
- Orica Australia Pty. Ltd.
- Kideco Jaya Agung - Indonesia
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- Baramulti Group, Indonesia
- Australian Coal Association
- GMR Energy Limited - India
- Orica Mining Services - Indonesia
- Indian Oil Corporation Limited
- Kepco SPC Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Georgia Ports Authority, United States
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- MS Steel International - UAE
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Interocean Group of Companies - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- Ministry of Mines - Canada
- Samtan Co., Ltd - South Korea
- Eastern Coal Council - USA
- San Jose City I Power Corp, Philippines
- Bhushan Steel Limited - India
- Eastern Energy - Thailand
- Sojitz Corporation - Japan
- Bangladesh Power Developement Board
- Heidelberg Cement - Germany
- Bayan Resources Tbk. - Indonesia
- SMC Global Power, Philippines
- Oldendorff Carriers - Singapore
- Energy Development Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- Tata Chemicals Ltd - India
- Altura Mining Limited, Indonesia
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- Siam City Cement - Thailand
- White Energy Company Limited
- Sindya Power Generating Company Private Ltd
- Mercuria Energy - Indonesia
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Parliament of New Zealand
- Commonwealth Bank - Australia
- Medco Energi Mining Internasional
- Miang Besar Coal Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Malabar Cements Ltd - India
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Wilmar Investment Holdings
- Petrochimia International Co. Ltd.- Taiwan
- Meralco Power Generation, Philippines
- Romanian Commodities Exchange
- GAC Shipping (India) Pvt Ltd
- Holcim Trading Pte Ltd - Singapore
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- Deloitte Consulting - India
- CNBM International Corporation - China
- Port Waratah Coal Services - Australia
- ICICI Bank Limited - India
- Dalmia Cement Bharat India
- Planning Commission, India
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Meenaskhi Energy Private Limited - India
- Merrill Lynch Commodities Europe
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- Pendopo Energi Batubara - Indonesia
- Trasteel International SA, Italy
- PetroVietnam Power Coal Import and Supply Company
- Thai Mozambique Logistica
- Bahari Cakrawala Sebuku - Indonesia
- Sarangani Energy Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- LBH Netherlands Bv - Netherlands
- Petron Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Indo Tambangraya Megah - Indonesia
- Ministry of Finance - Indonesia
- Rio Tinto Coal - Australia
- The Treasury - Australian Government
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- VISA Power Limited - India
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- CIMB Investment Bank - Malaysia
- Asmin Koalindo Tuhup - Indonesia
- Alfred C Toepfer International GmbH - Germany
- PTC India Limited - India
- European Bulk Services B.V. - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Energy Link Ltd, New Zealand
- Cigading International Bulk Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Directorate Of Revenue Intelligence - India
- Global Coal Blending Company Limited - Australia
- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Indika Energy - Indonesia
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- New Zealand Coal & Carbon
- Sical Logistics Limited - India
- Central Java Power - Indonesia
- Essar Steel Hazira Ltd - India
- Bukit Makmur.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Vedanta Resources Plc - India
- Chamber of Mines of South Africa
- Formosa Plastics Group - Taiwan
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- Power Finance Corporation Ltd., India
- Wood Mackenzie - Singapore
- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- Anglo American - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- Rashtriya Ispat Nigam Limited - India
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- Riau Bara Harum - Indonesia
- Economic Council, Georgia
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Ind-Barath Power Infra Limited - India
- Barasentosa Lestari - Indonesia
- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Mintek Dendrill Indonesia
- Kapuas Tunggal Persada - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- Manunggal Multi Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Agrawal Coal Company - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- SMG Consultants - Indonesia
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- Binh Thuan Hamico - Vietnam
- Coal and Oil Company - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- OPG Power Generation Pvt Ltd - India
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