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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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Thursday, 19 December 19
COAL POWER GENERATION CONTINUES TO DECLINE IN GERMANY: DESTATIS, XINHUA REPORTED
The volume of electricity generated in coal-fired power plants in Germany decreased “markedly” by 37 percent to 34 billion kilowatt-hou ...
Thursday, 19 December 19
BANGLADESH'S NBR CUTS VAT ON COAL IMPORT FOR POWER PLANTS - THE DAILY STAR
The National Board of Revenue (NBR) reduced value added tax on the import of coal for power plants to 5 percent from present 15 percent for five ye ...
Wednesday, 18 December 19
AVERAGE PRICES OF COAL IN 2018 WERE MORE THAN 60% HIGHER THAN IN 2016 - IEA
Coal use grew again in 2018.
Global coal demand increased by 1.1%, continuing the rebound that began in 2017 after three years of decline ...
Wednesday, 18 December 19
ASIA IS SET TO SUPPORT GLOBAL COAL DEMAND FOR THE NEXT FIVE YEARS - IEA
Press Release: Global coal demand is expected to decline in 2019 but remain broadly stable over the next five years, supported by robust growth in ...
Wednesday, 18 December 19
SHIPPING MARKET INSIGHT - INTERMODAL
As we all know very well by now, the reduction in the maximum allowable sulphur content of marine fuels in 2020 is likely to have a massive impact ...
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- SN Aboitiz Power Inc, Philippines
- Dalmia Cement Bharat India
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Madhucon Powers Ltd - India
- McConnell Dowell - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mintek Dendrill Indonesia
- Electricity Generating Authority of Thailand
- Kalimantan Lumbung Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Videocon Industries ltd - India
- VISA Power Limited - India
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Finance - Indonesia
- MS Steel International - UAE
- Tata Chemicals Ltd - India
- Wilmar Investment Holdings
- Planning Commission, India
- Coal and Oil Company - UAE
- Therma Luzon, Inc, Philippines
- Borneo Indobara - Indonesia
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- GAC Shipping (India) Pvt Ltd
- Minerals Council of Australia
- Straits Asia Resources Limited - Singapore
- Vizag Seaport Private Limited - India
- Africa Commodities Group - South Africa
- Manunggal Multi Energi - Indonesia
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Medco Energi Mining Internasional
- Holcim Trading Pte Ltd - Singapore
- Cigading International Bulk Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Karbindo Abesyapradhi - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Bhushan Steel Limited - India
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Economic Council, Georgia
- Kaltim Prima Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- Semirara Mining Corp, Philippines
- Kumho Petrochemical, South Korea
- Attock Cement Pakistan Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Chamber of Mines of South Africa
- GN Power Mariveles Coal Plant, Philippines
- Barasentosa Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Power Finance Corporation Ltd., India
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Anglo American - United Kingdom
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Eastern Energy - Thailand
- Vedanta Resources Plc - India
- Makarim & Taira - Indonesia
- SMG Consultants - Indonesia
- Electricity Authority, New Zealand
- Indika Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Timah Investasi Mineral - Indoneisa
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Rio Tinto Coal - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Xindia Steels Limited - India
- PNOC Exploration Corporation - Philippines
- The University of Queensland
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- Iligan Light & Power Inc, Philippines
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- CIMB Investment Bank - Malaysia
- PowerSource Philippines DevCo
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Sakthi Sugars Limited - India
- Marubeni Corporation - India
- OPG Power Generation Pvt Ltd - India
- Larsen & Toubro Limited - India
- Bayan Resources Tbk. - Indonesia
- Mercuria Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Bulk Trading Sa - Switzerland
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Jorong Barutama Greston.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Directorate Of Revenue Intelligence - India
- Thiess Contractors Indonesia
- Siam City Cement PLC, Thailand
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Independent Power Producers Association of India
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Jindal Steel & Power Ltd - India
- Simpson Spence & Young - Indonesia
- Formosa Plastics Group - Taiwan
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Mineral Development Corp Ltd - India
- Coastal Gujarat Power Limited - India
- Bhoruka Overseas - Indonesia
- Altura Mining Limited, Indonesia
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- Rashtriya Ispat Nigam Limited - India
- Kartika Selabumi Mining - Indonesia
- Indian Oil Corporation Limited
- Meralco Power Generation, Philippines
- Savvy Resources Ltd - HongKong
- Romanian Commodities Exchange
- Coalindo Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Bhatia International Limited - India
- CNBM International Corporation - China
- Global Coal Blending Company Limited - Australia
- Ind-Barath Power Infra Limited - India
- London Commodity Brokers - England
- Parliament of New Zealand
- Heidelberg Cement - Germany
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- IEA Clean Coal Centre - UK
- Standard Chartered Bank - UAE
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Edison Trading Spa - Italy
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Central Electricity Authority - India
- Trasteel International SA, Italy
- SMC Global Power, Philippines
- Agrawal Coal Company - India
- Sarangani Energy Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercator Lines Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- GMR Energy Limited - India
- Wood Mackenzie - Singapore
- Star Paper Mills Limited - India
- The State Trading Corporation of India Ltd
- Port Waratah Coal Services - Australia
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- Posco Energy - South Korea
- Cement Manufacturers Association - India
- Krishnapatnam Port Company Ltd. - India
- Orica Mining Services - Indonesia
- ICICI Bank Limited - India
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Energy Link Ltd, New Zealand
- Kideco Jaya Agung - Indonesia
- Aboitiz Power Corporation - Philippines
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Deloitte Consulting - India
- Sinarmas Energy and Mining - Indonesia
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Sical Logistics Limited - India
- Georgia Ports Authority, United States
- ASAPP Information Group - India
- Oldendorff Carriers - Singapore
- Sojitz Corporation - Japan
- Tamil Nadu electricity Board
- LBH Netherlands Bv - Netherlands
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