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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, 30 November 19
IMO2020 GLOBAL SULPHUR CUT: GERMAN SHIPPING TO USE NEW TYPE OF FUEL VDR SURVEY
IMO2020 Global sulphur cut: German shipping to use new type of fuel VDR survey: Technical issues and costs are the biggest challenges - VDR
&nb ...
Saturday, 30 November 19
PANAMAX: LEVELS IMPROVED IN THE PACIFIC MARKET TOO WITH $11,000 BEING CONCLUDED ON AN 81,000DWT SHIP FOR AN INDONESIA TO CHINA COAL TRIP - BALTIC BRIEFING
Capesize
The market has been well supported over the past week, led primarily by the Atlantic Basin. After bottoming last week, sentiment was s ...
Friday, 29 November 19
FITCHRATINGS MAINTAINS NEGATIVE 2020 OUTLOOK ON SHIPPING, AS TIGHTER SUPPLY HELPS, BUT SOFTER DEMAND DRAGS
Fitch’s Sector Outlook: Negative
We maintain a negative sector outlook for global shipping because of the forecast slowdown of ...
Friday, 29 November 19
INDONESIA PRODUCES 390 MLN TONNES OF COAL IN JAN-SEPT: MINISTER - REUTERS
Indonesia’s production of coal for the January-September period was 390 million tonnes, Energy and Mineral Resources Minister Arifin Tasrif s ...
Wednesday, 27 November 19
SHIPPING MARKET INSIGHT - INTERMODAL
As the end of the fourth quarter is approaching, one could say that the wet market has maintained the strong pace observed during the third qu ...
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- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Parliament of New Zealand
- The State Trading Corporation of India Ltd
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- Bharathi Cement Corporation - India
- Deloitte Consulting - India
- Standard Chartered Bank - UAE
- Orica Australia Pty. Ltd.
- The University of Queensland
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Malabar Cements Ltd - India
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- LBH Netherlands Bv - Netherlands
- Goldman Sachs - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Gujarat Electricity Regulatory Commission - India
- Kartika Selabumi Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- Borneo Indobara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- GMR Energy Limited - India
- Economic Council, Georgia
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Star Paper Mills Limited - India
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Ind-Barath Power Infra Limited - India
- Siam City Cement PLC, Thailand
- Grasim Industreis Ltd - India
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Alfred C Toepfer International GmbH - Germany
- Parry Sugars Refinery, India
- Globalindo Alam Lestari - Indonesia
- PTC India Limited - India
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Uttam Galva Steels Limited - India
- Heidelberg Cement - Germany
- Iligan Light & Power Inc, Philippines
- Metalloyd Limited - United Kingdom
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Banpu Public Company Limited - Thailand
- Africa Commodities Group - South Africa
- Bhushan Steel Limited - India
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Karbindo Abesyapradhi - Indoneisa
- Wood Mackenzie - Singapore
- Altura Mining Limited, Indonesia
- Bukit Baiduri Energy - Indonesia
- Petron Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- London Commodity Brokers - England
- Directorate General of MIneral and Coal - Indonesia
- Latin American Coal - Colombia
- Kepco SPC Power Corporation, Philippines
- Interocean Group of Companies - India
- Rio Tinto Coal - Australia
- Coalindo Energy - Indonesia
- Global Business Power Corporation, Philippines
- MS Steel International - UAE
- Planning Commission, India
- Thiess Contractors Indonesia
- Samtan Co., Ltd - South Korea
- Sarangani Energy Corporation, Philippines
- Indonesian Coal Mining Association
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining Corp, Philippines
- Sical Logistics Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mjunction Services Limited - India
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- Edison Trading Spa - Italy
- Australian Coal Association
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bulk Trading Sa - Switzerland
- Mintek Dendrill Indonesia
- India Bulls Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Directorate Of Revenue Intelligence - India
- Medco Energi Mining Internasional
- Sindya Power Generating Company Private Ltd
- Makarim & Taira - Indonesia
- South Luzon Thermal Energy Corporation
- Global Green Power PLC Corporation, Philippines
- Marubeni Corporation - India
- New Zealand Coal & Carbon
- International Coal Ventures Pvt Ltd - India
- Thai Mozambique Logistica
- Energy Development Corp, Philippines
- Meralco Power Generation, Philippines
- Carbofer General Trading SA - India
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- White Energy Company Limited
- Sojitz Corporation - Japan
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- Trasteel International SA, Italy
- Port Waratah Coal Services - Australia
- Posco Energy - South Korea
- SMC Global Power, Philippines
- Antam Resourcindo - Indonesia
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Authority, New Zealand
- Ministry of Transport, Egypt
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- Independent Power Producers Association of India
- Attock Cement Pakistan Limited
- GAC Shipping (India) Pvt Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The Treasury - Australian Government
- Jindal Steel & Power Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Ministry of Mines - Canada
- Siam City Cement - Thailand
- ASAPP Information Group - India
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Mercuria Energy - Indonesia
- Lanco Infratech Ltd - India
- Vizag Seaport Private Limited - India
- Therma Luzon, Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- GVK Power & Infra Limited - India
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- Price Waterhouse Coopers - Russia
- Eastern Coal Council - USA
- Kapuas Tunggal Persada - Indonesia
- Bhatia International Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- OPG Power Generation Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- TeaM Sual Corporation - Philippines
- Madhucon Powers Ltd - India
- Chettinad Cement Corporation Ltd - India
- PowerSource Philippines DevCo
- PNOC Exploration Corporation - Philippines
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Pendopo Energi Batubara - Indonesia
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Savvy Resources Ltd - HongKong
- Cigading International Bulk Terminal - Indonesia
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