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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, 28 June 24
INDIAN POWER STATIONS STOCKED WITH BUMPER COAL SUPPLY AS TRANSPORT WOES EASE - BUSINESS STANDARD
Even as power demand has touched a historic high of 250 gigawatts (Gw) amid sweltering heat this June, India’s power stations are stocked wit ...
Friday, 28 June 24
INDIA'S CY23 COAL USE LARGER THAN NORTH AMERICA, EUROPE COMBINED - THE HINDU
For the first time, India’s coal consumption surpassed that of North America and Europe combined in the calendar year 2023, said Energy Insti ...
Monday, 24 June 24
PLN'S FINANCIAL SUSTAINABILITY RESTS ON ACCELERATED COAL RETIREMENT AND RENEWABLES DEPLOYMENT - MUTYA YUSTIKA
On 28 May 2024, Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), released its financial report for 2023. Althoug ...
Monday, 24 June 24
INDIA'S COAL-BASED POWER DEMAND AT ALL-TIME HIGH, GOVERNMENT SAYS - REUTERS
India’s demand for coal-based power has risen by 7.3% this fiscal year to an all-time high, the government said in a statement on Wednesday.
...
Monday, 24 June 24
CHINA'S COAL INDUSTRY TURNS GREENER THROUGH INNOVATIVE APPROACHES - PEOPLE'S DAILY
At an opencast mine operated by Inner Mongolia Pingzhuang Coal Group Co. Ltd., a subsidiary of CHN Energy Investment Group (CHN Energy), a 14-meter ...
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- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Altura Mining Limited, Indonesia
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- Star Paper Mills Limited - India
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Iligan Light & Power Inc, Philippines
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Medco Energi Mining Internasional
- Parliament of New Zealand
- Commonwealth Bank - Australia
- European Bulk Services B.V. - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
- Wilmar Investment Holdings
- Edison Trading Spa - Italy
- Thiess Contractors Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Bangladesh Power Developement Board
- Vijayanagar Sugar Pvt Ltd - India
- Sical Logistics Limited - India
- Standard Chartered Bank - UAE
- Baramulti Group, Indonesia
- GAC Shipping (India) Pvt Ltd
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
- Ind-Barath Power Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Banpu Public Company Limited - Thailand
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- Neyveli Lignite Corporation Ltd, - India
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- SN Aboitiz Power Inc, Philippines
- IEA Clean Coal Centre - UK
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Power Finance Corporation Ltd., India
- Larsen & Toubro Limited - India
- Ambuja Cements Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- PTC India Limited - India
- Mercator Lines Limited - India
- Anglo American - United Kingdom
- Wood Mackenzie - Singapore
- Salva Resources Pvt Ltd - India
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Indian Oil Corporation Limited
- The University of Queensland
- Formosa Plastics Group - Taiwan
- VISA Power Limited - India
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- ICICI Bank Limited - India
- AsiaOL BioFuels Corp., Philippines
- Meralco Power Generation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Timah Investasi Mineral - Indoneisa
- Attock Cement Pakistan Limited
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- Mjunction Services Limited - India
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- Essar Steel Hazira Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Antam Resourcindo - Indonesia
- Sakthi Sugars Limited - India
- Jaiprakash Power Ventures ltd
- Minerals Council of Australia
- Posco Energy - South Korea
- Kideco Jaya Agung - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Parry Sugars Refinery, India
- Binh Thuan Hamico - Vietnam
- Aditya Birla Group - India
- Leighton Contractors Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Global Coal Blending Company Limited - Australia
- Rashtriya Ispat Nigam Limited - India
- Mintek Dendrill Indonesia
- Savvy Resources Ltd - HongKong
- Uttam Galva Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- South Luzon Thermal Energy Corporation
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Port Waratah Coal Services - Australia
- Energy Link Ltd, New Zealand
- OPG Power Generation Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Intertek Mineral Services - Indonesia
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Agrawal Coal Company - India
- Africa Commodities Group - South Africa
- India Bulls Power Limited - India
- Siam City Cement - Thailand
- Central Java Power - Indonesia
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- CIMB Investment Bank - Malaysia
- Electricity Authority, New Zealand
- Indonesian Coal Mining Association
- Sindya Power Generating Company Private Ltd
- Australian Commodity Traders Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Renaissance Capital - South Africa
- Central Electricity Authority - India
- Vedanta Resources Plc - India
- White Energy Company Limited
- Videocon Industries ltd - India
- Goldman Sachs - Singapore
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Indogreen Group - Indonesia
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TeaM Sual Corporation - Philippines
- Coalindo Energy - Indonesia
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Planning Commission, India
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Romanian Commodities Exchange
- Bharathi Cement Corporation - India
- PowerSource Philippines DevCo
- San Jose City I Power Corp, Philippines
- Bhushan Steel Limited - India
- Cigading International Bulk Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- GVK Power & Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Orica Mining Services - Indonesia
- Energy Development Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Trasteel International SA, Italy
- Indika Energy - Indonesia
- Singapore Mercantile Exchange
- Malabar Cements Ltd - India
- MS Steel International - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Makmur.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Oldendorff Carriers - Singapore
- Indo Tambangraya Megah - Indonesia
- Tamil Nadu electricity Board
- Kalimantan Lumbung Energi - Indonesia
- Karaikal Port Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
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