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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, 02 February 24
DRY BULK MARKET: THE DOWNWARD REVISION IN THE GROWTH OF CAPESIZE TONNE DAYS IN JANUARY WITH THE BCI DROPPING - MARIA BERTZELETOU
In the last week of January, the dry freight market sustained weakness in the Capesize segment, while the number of ballasters in the Southeast (SE ...
Friday, 02 February 24
COAL INDIA ACHIEVES NEARLY 80% OF ITS FY24 PRODUCTION TARGET IN TEN MONTHS - CNBCTV18
For the month of January, the company’s production grew by 9.1% from the same period last year to 78.4 Million Tonnes (MT), from 71.9 MT last ...
Thursday, 01 February 24
CHINA'S WIND, SOLAR CAPACITY TO OVERTAKE COAL IN 2024 - INDUSTRY BODY, REUTERS REPORTED
China’s installed wind and solar capacity is expected to overtake coal for the first time this year, according to industry forecasts.
&nb ...
Thursday, 01 February 24
ANTI-DEDUCTION CLAUSES: CAN A CHARTERER WITHHOLD HIRE WITHOUT AN OWNER'S CONSENT? - SKULD
KNOWLEDGE TO ELEVATE
Summary
In The Anna Dorothea, the Court found that where a charterparty provides that no deduction from hire may be m ...
Thursday, 01 February 24
INDIA REBUILDS COAL STOCKS TO ENSURE ELECTRIC RELIABILITY - REUTERS
India’s electricity supply is much more comfortable at the start of 2024 than in either 2023 or 2022 as coal production has ramped up and the ...
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- Petron Corporation, Philippines
- Interocean Group of Companies - India
- Directorate Of Revenue Intelligence - India
- Kaltim Prima Coal - Indonesia
- Parry Sugars Refinery, India
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- SMG Consultants - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Mintek Dendrill Indonesia
- OPG Power Generation Pvt Ltd - India
- Riau Bara Harum - Indonesia
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Larsen & Toubro Limited - India
- Salva Resources Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ind-Barath Power Infra Limited - India
- GMR Energy Limited - India
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Binh Thuan Hamico - Vietnam
- Formosa Plastics Group - Taiwan
- Maheswari Brothers Coal Limited - India
- Anglo American - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Agrawal Coal Company - India
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Eastern Coal Council - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kapuas Tunggal Persada - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Sarangani Energy Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Energy Link Ltd, New Zealand
- Ministry of Mines - Canada
- Thiess Contractors Indonesia
- VISA Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Sical Logistics Limited - India
- Australian Commodity Traders Exchange
- Planning Commission, India
- Makarim & Taira - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Merrill Lynch Commodities Europe
- Sree Jayajothi Cements Limited - India
- Thai Mozambique Logistica
- Medco Energi Mining Internasional
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Georgia Ports Authority, United States
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- GVK Power & Infra Limited - India
- Port Waratah Coal Services - Australia
- Economic Council, Georgia
- Ministry of Transport, Egypt
- Central Electricity Authority - India
- Maharashtra Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Carbofer General Trading SA - India
- Vedanta Resources Plc - India
- India Bulls Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- White Energy Company Limited
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- GAC Shipping (India) Pvt Ltd
- Tamil Nadu electricity Board
- Grasim Industreis Ltd - India
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Mercator Lines Limited - India
- Sojitz Corporation - Japan
- Vijayanagar Sugar Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Xindia Steels Limited - India
- Australian Coal Association
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- Central Java Power - Indonesia
- Aditya Birla Group - India
- Directorate General of MIneral and Coal - Indonesia
- London Commodity Brokers - England
- PetroVietnam Power Coal Import and Supply Company
- Antam Resourcindo - Indonesia
- ASAPP Information Group - India
- Mjunction Services Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Uttam Galva Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Sakthi Sugars Limited - India
- Mercuria Energy - Indonesia
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Star Paper Mills Limited - India
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- Straits Asia Resources Limited - Singapore
- Commonwealth Bank - Australia
- Ambuja Cements Ltd - India
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- Bayan Resources Tbk. - Indonesia
- Global Coal Blending Company Limited - Australia
- Cigading International Bulk Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Posco Energy - South Korea
- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Business Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Bangladesh Power Developement Board
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Heidelberg Cement - Germany
- Bharathi Cement Corporation - India
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- Savvy Resources Ltd - HongKong
- SN Aboitiz Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Therma Luzon, Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Bukit Asam (Persero) Tbk - Indonesia
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Barasentosa Lestari - Indonesia
- PTC India Limited - India
- Trasteel International SA, Italy
- Miang Besar Coal Terminal - Indonesia
- Africa Commodities Group - South Africa
- The State Trading Corporation of India Ltd
- Kideco Jaya Agung - Indonesia
- Indonesian Coal Mining Association
- Bulk Trading Sa - Switzerland
- Kohat Cement Company Ltd. - Pakistan
- IEA Clean Coal Centre - UK
- Coal and Oil Company - UAE
- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Asmin Koalindo Tuhup - Indonesia
- SMC Global Power, Philippines
- European Bulk Services B.V. - Netherlands
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- South Luzon Thermal Energy Corporation
- Intertek Mineral Services - Indonesia
- Indian Oil Corporation Limited
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- Global Green Power PLC Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Timah Investasi Mineral - Indoneisa
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- Wood Mackenzie - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- ICICI Bank Limited - India
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Malabar Cements Ltd - India
- Electricity Authority, New Zealand
- Globalindo Alam Lestari - Indonesia
- Indian Energy Exchange, India
- Madhucon Powers Ltd - India
- Coalindo Energy - Indonesia
- Siam City Cement PLC, Thailand
- Essar Steel Hazira Ltd - India
- Bukit Makmur.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- Meralco Power Generation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Gujarat Mineral Development Corp Ltd - India
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