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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, 06 February 19
THE BDI HAS EASED BACK TO 645 BP, ITS LOWEST LEVEL SINCE AUGUST 2016 - ALLIED
The dry bulk sector is in the doldrums, with most market participants seemingly left utterly perplexed, and simultaneously, in pursuit of any posit ...
Monday, 04 February 19
COAL STILL IN HIGH DEMAND GLOBALLY
Although the world is switching to renewable energy there is still a big demand for coal around the globe.
This is according to Cany ...
Friday, 01 February 19
ULTRAMAX WAS FIXED DELIVERY KALIMANTAN, FOR TRIP TO WEST COAST INDIA AT $7,000 - BALTIC BRIEFING
Capesize
The Vale dam tragedy sparked a sharp fall in rates across all regions even where tonnage remained tight. The potential loss of product ...
Friday, 01 February 19
SEMBCORP SELECTS NORDEN FOR LONG-TERM INDIAN CONTRACT
NORDEN A/S has signed a 10-year Panamax Contract of Affreightment (COA) with Indian utility firm Sembcorp Energy India Ltd.
From 1 A ...
Tuesday, 29 January 19
HARD COAL BEARS THE BRUNT OF THE RECOMMENDATIONS OF THE COMMISSION GROWTH STRUCTURAL CHANGE AND EMPLOYMENT - VDKI
Press Release: Hard coal bears the brunt of the recommendations of the Commission Growth Structural change and employment.
In its fi ...
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- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- Globalindo Alam Lestari - Indonesia
- Rio Tinto Coal - Australia
- Madhucon Powers Ltd - India
- Binh Thuan Hamico - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Heidelberg Cement - Germany
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- The University of Queensland
- European Bulk Services B.V. - Netherlands
- Global Coal Blending Company Limited - Australia
- Ministry of Mines - Canada
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- SMG Consultants - Indonesia
- Sakthi Sugars Limited - India
- PowerSource Philippines DevCo
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Orica Australia Pty. Ltd.
- Planning Commission, India
- IEA Clean Coal Centre - UK
- Directorate Of Revenue Intelligence - India
- CIMB Investment Bank - Malaysia
- Bhatia International Limited - India
- Meralco Power Generation, Philippines
- Kobexindo Tractors - Indoneisa
- Deloitte Consulting - India
- Electricity Authority, New Zealand
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- VISA Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- PNOC Exploration Corporation - Philippines
- GMR Energy Limited - India
- The State Trading Corporation of India Ltd
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- New Zealand Coal & Carbon
- Goldman Sachs - Singapore
- Indonesian Coal Mining Association
- Bulk Trading Sa - Switzerland
- Semirara Mining Corp, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indian Energy Exchange, India
- International Coal Ventures Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Altura Mining Limited, Indonesia
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Banpu Public Company Limited - Thailand
- Krishnapatnam Port Company Ltd. - India
- Vijayanagar Sugar Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Trasteel International SA, Italy
- Anglo American - United Kingdom
- CNBM International Corporation - China
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
- McConnell Dowell - Australia
- Ministry of Finance - Indonesia
- Bukit Baiduri Energy - Indonesia
- Petron Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Xindia Steels Limited - India
- Electricity Generating Authority of Thailand
- OPG Power Generation Pvt Ltd - India
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Power Finance Corporation Ltd., India
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Vizag Seaport Private Limited - India
- Intertek Mineral Services - Indonesia
- ICICI Bank Limited - India
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Jindal Steel & Power Ltd - India
- Bhushan Steel Limited - India
- Baramulti Group, Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Maheswari Brothers Coal Limited - India
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Coastal Gujarat Power Limited - India
- Indian Oil Corporation Limited
- Formosa Plastics Group - Taiwan
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- London Commodity Brokers - England
- Barasentosa Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Energy Development Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Indo Tambangraya Megah - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kapuas Tunggal Persada - Indonesia
- MS Steel International - UAE
- Simpson Spence & Young - Indonesia
- PTC India Limited - India
- Uttam Galva Steels Limited - India
- Kaltim Prima Coal - Indonesia
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Parry Sugars Refinery, India
- India Bulls Power Limited - India
- Gujarat Sidhee Cement - India
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Australian Commodity Traders Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement - Thailand
- Essar Steel Hazira Ltd - India
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Sree Jayajothi Cements Limited - India
- Semirara Mining and Power Corporation, Philippines
- Indika Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Ambuja Cements Ltd - India
- Gujarat Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Mintek Dendrill Indonesia
- Agrawal Coal Company - India
- Grasim Industreis Ltd - India
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Central Electricity Authority - India
- Therma Luzon, Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Coal and Oil Company - UAE
- Holcim Trading Pte Ltd - Singapore
- Standard Chartered Bank - UAE
- Gujarat Mineral Development Corp Ltd - India
- Makarim & Taira - Indonesia
- Eastern Coal Council - USA
- Minerals Council of Australia
- Iligan Light & Power Inc, Philippines
- Metalloyd Limited - United Kingdom
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Economic Council, Georgia
- Aditya Birla Group - India
- The Treasury - Australian Government
- Kalimantan Lumbung Energi - Indonesia
- Larsen & Toubro Limited - India
- Mercuria Energy - Indonesia
- Tata Chemicals Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Karbindo Abesyapradhi - Indoneisa
- Tamil Nadu electricity Board
- White Energy Company Limited
- Price Waterhouse Coopers - Russia
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Merrill Lynch Commodities Europe
- Sinarmas Energy and Mining - Indonesia
- Riau Bara Harum - Indonesia
- Attock Cement Pakistan Limited
- Mjunction Services Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Kohat Cement Company Ltd. - Pakistan
- Manunggal Multi Energi - Indonesia
- Sical Logistics Limited - India
- Rashtriya Ispat Nigam Limited - India
- Orica Mining Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- Videocon Industries ltd - India
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- Borneo Indobara - Indonesia
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Australian Coal Association
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Aboitiz Power Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- Bharathi Cement Corporation - India
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