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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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Sunday, 22 December 19
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The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
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- Australian Coal Association
- Gujarat Mineral Development Corp Ltd - India
- Orica Mining Services - Indonesia
- Edison Trading Spa - Italy
- Straits Asia Resources Limited - Singapore
- Anglo American - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- Georgia Ports Authority, United States
- Savvy Resources Ltd - HongKong
- Bukit Asam (Persero) Tbk - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Antam Resourcindo - Indonesia
- Port Waratah Coal Services - Australia
- Meenaskhi Energy Private Limited - India
- VISA Power Limited - India
- Interocean Group of Companies - India
- Goldman Sachs - Singapore
- Globalindo Alam Lestari - Indonesia
- Economic Council, Georgia
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Cement Manufacturers Association - India
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Neyveli Lignite Corporation Ltd, - India
- Lanco Infratech Ltd - India
- Mercator Lines Limited - India
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- New Zealand Coal & Carbon
- Coalindo Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Bangladesh Power Developement Board
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
- Indogreen Group - Indonesia
- Marubeni Corporation - India
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- Medco Energi Mining Internasional
- Holcim Trading Pte Ltd - Singapore
- Commonwealth Bank - Australia
- Kaltim Prima Coal - Indonesia
- Bhushan Steel Limited - India
- Bukit Makmur.PT - Indonesia
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Siam City Cement PLC, Thailand
- Manunggal Multi Energi - Indonesia
- Indo Tambangraya Megah - Indonesia
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- McConnell Dowell - Australia
- Africa Commodities Group - South Africa
- Wood Mackenzie - Singapore
- International Coal Ventures Pvt Ltd - India
- IEA Clean Coal Centre - UK
- IHS Mccloskey Coal Group - USA
- Minerals Council of Australia
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- San Jose City I Power Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
- Ministry of Mines - Canada
- Thai Mozambique Logistica
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- Sakthi Sugars Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Oldendorff Carriers - Singapore
- Sarangani Energy Corporation, Philippines
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- Krishnapatnam Port Company Ltd. - India
- ICICI Bank Limited - India
- Electricity Authority, New Zealand
- Mjunction Services Limited - India
- Leighton Contractors Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- MS Steel International - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Essar Steel Hazira Ltd - India
- Samtan Co., Ltd - South Korea
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- ASAPP Information Group - India
- Vizag Seaport Private Limited - India
- Parliament of New Zealand
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Videocon Industries ltd - India
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- Aditya Birla Group - India
- Carbofer General Trading SA - India
- CNBM International Corporation - China
- Grasim Industreis Ltd - India
- Chettinad Cement Corporation Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Posco Energy - South Korea
- Independent Power Producers Association of India
- PTC India Limited - India
- Iligan Light & Power Inc, Philippines
- Ambuja Cements Ltd - India
- The University of Queensland
- OPG Power Generation Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Binh Thuan Hamico - Vietnam
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Directorate Of Revenue Intelligence - India
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Singapore Mercantile Exchange
- India Bulls Power Limited - India
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Sical Logistics Limited - India
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- Indian Oil Corporation Limited
- LBH Netherlands Bv - Netherlands
- Xindia Steels Limited - India
- Jaiprakash Power Ventures ltd
- Latin American Coal - Colombia
- Alfred C Toepfer International GmbH - Germany
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Makarim & Taira - Indonesia
- Dalmia Cement Bharat India
- Larsen & Toubro Limited - India
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Tamil Nadu electricity Board
- Borneo Indobara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Coal and Oil Company - UAE
- Bharathi Cement Corporation - India
- Barasentosa Lestari - Indonesia
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- Planning Commission, India
- Ministry of Finance - Indonesia
- Riau Bara Harum - Indonesia
- SMG Consultants - Indonesia
- Kobexindo Tractors - Indoneisa
- Meralco Power Generation, Philippines
- Agrawal Coal Company - India
- Sojitz Corporation - Japan
- White Energy Company Limited
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- Standard Chartered Bank - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Bulk Trading Sa - Switzerland
- Price Waterhouse Coopers - Russia
- Malabar Cements Ltd - India
- Orica Australia Pty. Ltd.
- Vedanta Resources Plc - India
- Star Paper Mills Limited - India
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