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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, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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- Malabar Cements Ltd - India
- Ministry of Transport, Egypt
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Cement Manufacturers Association - India
- Straits Asia Resources Limited - Singapore
- The University of Queensland
- ASAPP Information Group - India
- Leighton Contractors Pty Ltd - Australia
- Anglo American - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercator Lines Limited - India
- Minerals Council of Australia
- Barasentosa Lestari - Indonesia
- Energy Development Corp, Philippines
- Tata Chemicals Ltd - India
- Carbofer General Trading SA - India
- Madhucon Powers Ltd - India
- Pendopo Energi Batubara - Indonesia
- Eastern Energy - Thailand
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bangladesh Power Developement Board
- Uttam Galva Steels Limited - India
- Thiess Contractors Indonesia
- Siam City Cement PLC, Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Parliament of New Zealand
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate Of Revenue Intelligence - India
- Oldendorff Carriers - Singapore
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Central Java Power - Indonesia
- Banpu Public Company Limited - Thailand
- India Bulls Power Limited - India
- Videocon Industries ltd - India
- Deloitte Consulting - India
- White Energy Company Limited
- Bhushan Steel Limited - India
- Meralco Power Generation, Philippines
- Petron Corporation, Philippines
- Agrawal Coal Company - India
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Africa Commodities Group - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- Renaissance Capital - South Africa
- Semirara Mining and Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Kumho Petrochemical, South Korea
- Jorong Barutama Greston.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- GMR Energy Limited - India
- Star Paper Mills Limited - India
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- Bhoruka Overseas - Indonesia
- AsiaOL BioFuels Corp., Philippines
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Indogreen Group - Indonesia
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- CNBM International Corporation - China
- Xindia Steels Limited - India
- ICICI Bank Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Bukit Makmur.PT - Indonesia
- Antam Resourcindo - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Australian Coal Association
- Simpson Spence & Young - Indonesia
- Therma Luzon, Inc, Philippines
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Mjunction Services Limited - India
- SMC Global Power, Philippines
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Rio Tinto Coal - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Interocean Group of Companies - India
- Bhatia International Limited - India
- VISA Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- Rashtriya Ispat Nigam Limited - India
- Lanco Infratech Ltd - India
- Central Electricity Authority - India
- LBH Netherlands Bv - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Independent Power Producers Association of India
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- TNB Fuel Sdn Bhd - Malaysia
- Grasim Industreis Ltd - India
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Meenaskhi Energy Private Limited - India
- The State Trading Corporation of India Ltd
- Sarangani Energy Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Gujarat Sidhee Cement - India
- Riau Bara Harum - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- TeaM Sual Corporation - Philippines
- Orica Mining Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- Wilmar Investment Holdings
- Karbindo Abesyapradhi - Indoneisa
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- Georgia Ports Authority, United States
- Bharathi Cement Corporation - India
- Indika Energy - Indonesia
- Semirara Mining Corp, Philippines
- Planning Commission, India
- International Coal Ventures Pvt Ltd - India
- The Treasury - Australian Government
- Formosa Plastics Group - Taiwan
- South Luzon Thermal Energy Corporation
- Ceylon Electricity Board - Sri Lanka
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- Sindya Power Generating Company Private Ltd
- Maheswari Brothers Coal Limited - India
- Timah Investasi Mineral - Indoneisa
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- SMG Consultants - Indonesia
- Sree Jayajothi Cements Limited - India
- Indo Tambangraya Megah - Indonesia
- Kobexindo Tractors - Indoneisa
- Dalmia Cement Bharat India
- Neyveli Lignite Corporation Ltd, - India
- Economic Council, Georgia
- Kapuas Tunggal Persada - Indonesia
- Electricity Generating Authority of Thailand
- MS Steel International - UAE
- PowerSource Philippines DevCo
- Krishnapatnam Port Company Ltd. - India
- Heidelberg Cement - Germany
- Makarim & Taira - Indonesia
- PTC India Limited - India
- CIMB Investment Bank - Malaysia
- New Zealand Coal & Carbon
- Posco Energy - South Korea
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- Vizag Seaport Private Limited - India
- Mercuria Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Gujarat Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Price Waterhouse Coopers - Russia
- Intertek Mineral Services - Indonesia
- Port Waratah Coal Services - Australia
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- GN Power Mariveles Coal Plant, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- Holcim Trading Pte Ltd - Singapore
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