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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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Saturday, 07 December 19
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Saturday, 07 December 19
SOUTH AFRICAN COAL PRICE SURGE, WHILE OTHERS LANGUISH, IS TROUBLING - REUTERS
Coal prices around the world are gently sliding as demand from top importers such as China, India and even Europe remains subdued amid a so far mil ...
Saturday, 07 December 19
SUPRAMAX: OVERALL, THE BALTIC SUPRAMAX INDEX REMAINED IN POSITIVE MODE, DESPITE SOME AREAS LACKING FRESH ACTIVITY - BALTIC BRIEFING
Capesize
This week the Capesize market maintained healthy earnings, as an end of year surge took the Capesize 5TC back up to $25,202 by mid-wee ...
Friday, 06 December 19
INDONESIA COAL BENCHMARK PRICE FOR DECEMBER INCREASES BY US 3 CENTS MOM
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...
Thursday, 05 December 19
IMO 2020 IS ABOUT TO GET REAL - GAVIN THOMPSON
As I write this edition of the APAC Energy Buzz from my desk in Singapore I can see ships. Lots of ships. No surprise given that Singapore is among ...
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- Global Business Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Carbofer General Trading SA - India
- Dalmia Cement Bharat India
- Salva Resources Pvt Ltd - India
- Orica Mining Services - Indonesia
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Planning Commission, India
- Xindia Steels Limited - India
- Romanian Commodities Exchange
- Global Coal Blending Company Limited - Australia
- Karbindo Abesyapradhi - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Latin American Coal - Colombia
- ASAPP Information Group - India
- Petron Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Standard Chartered Bank - UAE
- Barasentosa Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Billiton Holdings Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Medco Energi Mining Internasional
- New Zealand Coal & Carbon
- Georgia Ports Authority, United States
- Siam City Cement - Thailand
- MS Steel International - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indonesian Coal Mining Association
- The Treasury - Australian Government
- Indika Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- Maharashtra Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Aditya Birla Group - India
- Neyveli Lignite Corporation Ltd, - India
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Pipit Mutiara Jaya. PT, Indonesia
- VISA Power Limited - India
- SMG Consultants - Indonesia
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Parliament of New Zealand
- The State Trading Corporation of India Ltd
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- Tamil Nadu electricity Board
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- Attock Cement Pakistan Limited
- PowerSource Philippines DevCo
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Bulk Trading Sa - Switzerland
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Meenaskhi Energy Private Limited - India
- Makarim & Taira - Indonesia
- Interocean Group of Companies - India
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Manunggal Multi Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Heidelberg Cement - Germany
- Kumho Petrochemical, South Korea
- Mintek Dendrill Indonesia
- Grasim Industreis Ltd - India
- Cement Manufacturers Association - India
- Bahari Cakrawala Sebuku - Indonesia
- London Commodity Brokers - England
- OPG Power Generation Pvt Ltd - India
- Electricity Generating Authority of Thailand
- India Bulls Power Limited - India
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- Meralco Power Generation, Philippines
- PNOC Exploration Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Rio Tinto Coal - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- CNBM International Corporation - China
- Mjunction Services Limited - India
- Mercuria Energy - Indonesia
- Posco Energy - South Korea
- Kartika Selabumi Mining - Indonesia
- Coalindo Energy - Indonesia
- Wilmar Investment Holdings
- Globalindo Alam Lestari - Indonesia
- The University of Queensland
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- South Luzon Thermal Energy Corporation
- Bhatia International Limited - India
- Videocon Industries ltd - India
- Deloitte Consulting - India
- Africa Commodities Group - South Africa
- Eastern Coal Council - USA
- TeaM Sual Corporation - Philippines
- Australian Coal Association
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- TNB Fuel Sdn Bhd - Malaysia
- Vizag Seaport Private Limited - India
- IHS Mccloskey Coal Group - USA
- Port Waratah Coal Services - Australia
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Orica Australia Pty. Ltd.
- Anglo American - United Kingdom
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Chamber of Mines of South Africa
- Semirara Mining and Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Madhucon Powers Ltd - India
- Semirara Mining Corp, Philippines
- Renaissance Capital - South Africa
- Singapore Mercantile Exchange
- Jaiprakash Power Ventures ltd
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
- Coastal Gujarat Power Limited - India
- Ministry of Transport, Egypt
- Riau Bara Harum - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Thiess Contractors Indonesia
- Sarangani Energy Corporation, Philippines
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- PTC India Limited - India
- Timah Investasi Mineral - Indoneisa
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Merrill Lynch Commodities Europe
- Uttam Galva Steels Limited - India
- Indian Energy Exchange, India
- Kepco SPC Power Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Coal and Oil Company - UAE
- Kaltim Prima Coal - Indonesia
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- International Coal Ventures Pvt Ltd - India
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Pendopo Energi Batubara - Indonesia
- Maheswari Brothers Coal Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- Kapuas Tunggal Persada - Indonesia
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- CIMB Investment Bank - Malaysia
- Ind-Barath Power Infra Limited - India
- Lanco Infratech Ltd - India
- Parry Sugars Refinery, India
- Karaikal Port Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Bukit Baiduri Energy - Indonesia
- Power Finance Corporation Ltd., India
- Central Electricity Authority - India
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Therma Luzon, Inc, Philippines
- Tata Chemicals Ltd - India
- Mercator Lines Limited - India
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