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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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Monday, 08 January 24
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- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- Intertek Mineral Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Singapore Mercantile Exchange
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- Petron Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Simpson Spence & Young - Indonesia
- Coalindo Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Meenaskhi Energy Private Limited - India
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Central Java Power - Indonesia
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- International Coal Ventures Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- White Energy Company Limited
- Electricity Generating Authority of Thailand
- Vizag Seaport Private Limited - India
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Oldendorff Carriers - Singapore
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Indian Energy Exchange, India
- SMG Consultants - Indonesia
- Bukit Baiduri Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Georgia Ports Authority, United States
- Coastal Gujarat Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Kaltim Prima Coal - Indonesia
- Bharathi Cement Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- South Luzon Thermal Energy Corporation
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
- Siam City Cement - Thailand
- ASAPP Information Group - India
- Miang Besar Coal Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Mercator Lines Limited - India
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
- Ministry of Mines - Canada
- GVK Power & Infra Limited - India
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- Videocon Industries ltd - India
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- European Bulk Services B.V. - Netherlands
- Jaiprakash Power Ventures ltd
- Petrochimia International Co. Ltd.- Taiwan
- Baramulti Group, Indonesia
- VISA Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Leighton Contractors Pty Ltd - Australia
- Coal and Oil Company - UAE
- Semirara Mining and Power Corporation, Philippines
- Sakthi Sugars Limited - India
- India Bulls Power Limited - India
- Antam Resourcindo - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Anglo American - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Kartika Selabumi Mining - Indonesia
- Altura Mining Limited, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- Romanian Commodities Exchange
- IEA Clean Coal Centre - UK
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Vedanta Resources Plc - India
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- Energy Link Ltd, New Zealand
- The State Trading Corporation of India Ltd
- Indogreen Group - Indonesia
- PowerSource Philippines DevCo
- Sree Jayajothi Cements Limited - India
- Sindya Power Generating Company Private Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Straits Asia Resources Limited - Singapore
- Tata Chemicals Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Finance - Indonesia
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- Dalmia Cement Bharat India
- Sojitz Corporation - Japan
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- Manunggal Multi Energi - Indonesia
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Bhushan Steel Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- PTC India Limited - India
- Merrill Lynch Commodities Europe
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CNBM International Corporation - China
- The University of Queensland
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- TeaM Sual Corporation - Philippines
- Sarangani Energy Corporation, Philippines
- New Zealand Coal & Carbon
- Planning Commission, India
- Kapuas Tunggal Persada - Indonesia
- Mercuria Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Jindal Steel & Power Ltd - India
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Attock Cement Pakistan Limited
- Salva Resources Pvt Ltd - India
- Australian Commodity Traders Exchange
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- Price Waterhouse Coopers - Russia
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- Uttam Galva Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Wilmar Investment Holdings
- Malabar Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Kobexindo Tractors - Indoneisa
- Renaissance Capital - South Africa
- Marubeni Corporation - India
- Commonwealth Bank - Australia
- Grasim Industreis Ltd - India
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Madhucon Powers Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Directorate Of Revenue Intelligence - India
- Ind-Barath Power Infra Limited - India
- Aditya Birla Group - India
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Ceylon Electricity Board - Sri Lanka
- Energy Development Corp, Philippines
- Interocean Group of Companies - India
- Karaikal Port Pvt Ltd - India
- Wood Mackenzie - Singapore
- Orica Mining Services - Indonesia
- Central Electricity Authority - India
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Siam City Cement PLC, Thailand
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Minerals Council of Australia
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- Australian Coal Association
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- IHS Mccloskey Coal Group - USA
- London Commodity Brokers - England
- Makarim & Taira - Indonesia
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