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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, 01 December 23
COAL MINERS GROUP EXPECTS INDONESIA’S 2023 COAL OUTPUT TO SURPASS TARGET - REUTERS
The Indonesian Coal Mining Association (ICMA) expects the country’s 2023 coal output to surpass the official target of 695 million metric ton ...
Friday, 24 November 23
COAL IMPORTS TO INDIA IN OCTOBER 2023 REACHED HIGHEST LEVELS IN NEARLY A YEAR AND A HALF - VESSELSVALUE, VESON NAUTICAL
In October, coal imports to India reached 13.8 mt in October 2023, according to Oceanbolt, a Veson Nautical solution, the highest level since May 2 ...
Friday, 24 November 23
COAL SHIPMENTS TO ADVANCED ECONOMIES DOWN 17% SO FAR IN 2023 - BIMCO
In the first ten months of 2023, coal shipments to advanced economies fell by 17% y/y, as demand for electricity declined and the share of electric ...
Friday, 24 November 23
INTELLIGENT COAL MINES CONTRIBUTE TO IMPROVING SAFETY STANDARDS - CHINA DAILY
Mechanization, automation and intelligent upgrades have contributed to improved safety in coal mines, though the level of development of intelligen ...
Friday, 24 November 23
WHY AUSTRALIA'S COAL MINES ARE GETTING BIGGER - IEEFA
Australia’s largest coal mines are getting larger. Mines in New South Wales (NSW) are ramping up production following the state’s recov ...
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- McConnell Dowell - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coal and Oil Company - UAE
- Bangladesh Power Developement Board
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
- Central Electricity Authority - India
- Chettinad Cement Corporation Ltd - India
- Merrill Lynch Commodities Europe
- Ambuja Cements Ltd - India
- SN Aboitiz Power Inc, Philippines
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- Karbindo Abesyapradhi - Indoneisa
- San Jose City I Power Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- IEA Clean Coal Centre - UK
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Georgia Ports Authority, United States
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Agrawal Coal Company - India
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Finance - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Orica Australia Pty. Ltd.
- Aboitiz Power Corporation - Philippines
- Lanco Infratech Ltd - India
- Malabar Cements Ltd - India
- Siam City Cement - Thailand
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Mjunction Services Limited - India
- Indian Energy Exchange, India
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Transport, Egypt
- Metalloyd Limited - United Kingdom
- Global Green Power PLC Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Uttam Galva Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Edison Trading Spa - Italy
- Energy Link Ltd, New Zealand
- Videocon Industries ltd - India
- Economic Council, Georgia
- Siam City Cement PLC, Thailand
- Marubeni Corporation - India
- Indika Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Commonwealth Bank - Australia
- Tata Chemicals Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Kaltim Prima Coal - Indonesia
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Cement Manufacturers Association - India
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Ministry of Mines - Canada
- Parliament of New Zealand
- TeaM Sual Corporation - Philippines
- Global Business Power Corporation, Philippines
- Indogreen Group - Indonesia
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
- CIMB Investment Bank - Malaysia
- Larsen & Toubro Limited - India
- Trasteel International SA, Italy
- Gujarat Mineral Development Corp Ltd - India
- Sindya Power Generating Company Private Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Makarim & Taira - Indonesia
- Directorate Of Revenue Intelligence - India
- Vizag Seaport Private Limited - India
- Australian Commodity Traders Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Wood Mackenzie - Singapore
- The University of Queensland
- SMG Consultants - Indonesia
- Rio Tinto Coal - Australia
- Coastal Gujarat Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Eastern Energy - Thailand
- PowerSource Philippines DevCo
- Kumho Petrochemical, South Korea
- Maharashtra Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Parry Sugars Refinery, India
- Manunggal Multi Energi - Indonesia
- Bharathi Cement Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Bhushan Steel Limited - India
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- Madhucon Powers Ltd - India
- Sinarmas Energy and Mining - Indonesia
- MS Steel International - UAE
- Jindal Steel & Power Ltd - India
- LBH Netherlands Bv - Netherlands
- South Luzon Thermal Energy Corporation
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Kohat Cement Company Ltd. - Pakistan
- Kalimantan Lumbung Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Toyota Tsusho Corporation, Japan
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- VISA Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Mintek Dendrill Indonesia
- Salva Resources Pvt Ltd - India
- India Bulls Power Limited - India
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- Globalindo Alam Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- SMC Global Power, Philippines
- Samtan Co., Ltd - South Korea
- Baramulti Group, Indonesia
- Aditya Birla Group - India
- Antam Resourcindo - Indonesia
- Attock Cement Pakistan Limited
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GMR Energy Limited - India
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Anglo American - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Eastern Coal Council - USA
- Price Waterhouse Coopers - Russia
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- Australian Coal Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Sakthi Sugars Limited - India
- Indonesian Coal Mining Association
- Indo Tambangraya Megah - Indonesia
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Iligan Light & Power Inc, Philippines
- Renaissance Capital - South Africa
- Bhoruka Overseas - Indonesia
- Planning Commission, India
- Savvy Resources Ltd - HongKong
- Directorate General of MIneral and Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- Africa Commodities Group - South Africa
- AsiaOL BioFuels Corp., Philippines
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- Medco Energi Mining Internasional
- Posco Energy - South Korea
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- Holcim Trading Pte Ltd - Singapore
- Mercator Lines Limited - India
- Central Java Power - Indonesia
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Thiess Contractors Indonesia
- Mercuria Energy - Indonesia
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- ASAPP Information Group - India
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