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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, 16 November 19
LIFE AFTER FOSSIL FUELS: THE DAYS OF OIL AND COAL TRANSPORTATION ARE NUMBERED - BALTIC EXCHANGE
With the world fiercely focused on a decarbonised future, fossil fuel movers and traders might rightly be reconsidering their future. But cast a wi ...
Saturday, 16 November 19
OIL MARKET REPORT: PAUSING TO REFLECT - IEA
Global oil demand in 3Q19 increased by 1.1 mb/d year-on-year (y-o-y), more than double the 435 kb/d seen in 2Q19. China’s demand increased by ...
Friday, 15 November 19
RISING ENERGY DEMAND IN SOUTHEAST ASIA TO BE MET AND SUPPORTED BY COAL - WORLD COAL
Last week the International Energy Agency (IEA) released its semi-annual Southeast Asia Energy Outlook report which outlines the latest insights in ...
Thursday, 14 November 19
EIA EXPECTS U.S. STEAM COAL EXPORTS TO FACE INCREASING COMPETITION FROM EASTERN EUROPEAN SOURCES
EIA expects total U.S. coal production in 2019 to total 698 million short tons (MMst), an 8% decrease from the 2018 level of 756 MMst. The decline ...
Wednesday, 13 November 19
INDONESIAN NOVEMBER COAL PRICE REFERENCE LOGS FIRST GAIN SINCE AUGUST
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...
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- San Jose City I Power Corp, Philippines
- Coalindo Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- PowerSource Philippines DevCo
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Salva Resources Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Posco Energy - South Korea
- Riau Bara Harum - Indonesia
- Barasentosa Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Planning Commission, India
- Cement Manufacturers Association - India
- Minerals Council of Australia
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- MS Steel International - UAE
- Kohat Cement Company Ltd. - Pakistan
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- London Commodity Brokers - England
- Makarim & Taira - Indonesia
- VISA Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SMC Global Power, Philippines
- Binh Thuan Hamico - Vietnam
- Sical Logistics Limited - India
- Port Waratah Coal Services - Australia
- Indonesian Coal Mining Association
- Rio Tinto Coal - Australia
- Ministry of Finance - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Australian Commodity Traders Exchange
- Orica Mining Services - Indonesia
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Renaissance Capital - South Africa
- Central Java Power - Indonesia
- Australian Coal Association
- Parliament of New Zealand
- GAC Shipping (India) Pvt Ltd
- Chamber of Mines of South Africa
- Ministry of Transport, Egypt
- Oldendorff Carriers - Singapore
- Miang Besar Coal Terminal - Indonesia
- Marubeni Corporation - India
- ICICI Bank Limited - India
- International Coal Ventures Pvt Ltd - India
- Bhatia International Limited - India
- India Bulls Power Limited - India
- Thai Mozambique Logistica
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- GMR Energy Limited - India
- Interocean Group of Companies - India
- Wood Mackenzie - Singapore
- Metalloyd Limited - United Kingdom
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- ASAPP Information Group - India
- South Luzon Thermal Energy Corporation
- Singapore Mercantile Exchange
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement PLC, Thailand
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- The University of Queensland
- CIMB Investment Bank - Malaysia
- Essar Steel Hazira Ltd - India
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
- Eastern Energy - Thailand
- Simpson Spence & Young - Indonesia
- Indian Oil Corporation Limited
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Bhushan Steel Limited - India
- Semirara Mining and Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Eastern Coal Council - USA
- Commonwealth Bank - Australia
- Wilmar Investment Holdings
- Holcim Trading Pte Ltd - Singapore
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- GVK Power & Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Kapuas Tunggal Persada - Indonesia
- Globalindo Alam Lestari - Indonesia
- Heidelberg Cement - Germany
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Neyveli Lignite Corporation Ltd, - India
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Asmin Koalindo Tuhup - Indonesia
- Latin American Coal - Colombia
- Larsen & Toubro Limited - India
- Sarangani Energy Corporation, Philippines
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- Gujarat Electricity Regulatory Commission - India
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- TeaM Sual Corporation - Philippines
- Independent Power Producers Association of India
- Bukit Makmur.PT - Indonesia
- Indogreen Group - Indonesia
- Romanian Commodities Exchange
- Coal and Oil Company - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- IHS Mccloskey Coal Group - USA
- Petron Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Madhucon Powers Ltd - India
- Vedanta Resources Plc - India
- European Bulk Services B.V. - Netherlands
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Ministry of Mines - Canada
- Maheswari Brothers Coal Limited - India
- AsiaOL BioFuels Corp., Philippines
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Tamil Nadu electricity Board
- Electricity Generating Authority of Thailand
- Tata Chemicals Ltd - India
- Bukit Baiduri Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Attock Cement Pakistan Limited
- Lanco Infratech Ltd - India
- Global Coal Blending Company Limited - Australia
- PTC India Limited - India
- Parry Sugars Refinery, India
- Karaikal Port Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- The Treasury - Australian Government
- Semirara Mining Corp, Philippines
- Antam Resourcindo - Indonesia
- Mercuria Energy - Indonesia
- Anglo American - United Kingdom
- Orica Australia Pty. Ltd.
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Siam City Cement - Thailand
- White Energy Company Limited
- Timah Investasi Mineral - Indoneisa
- Ind-Barath Power Infra Limited - India
- Savvy Resources Ltd - HongKong
- Agrawal Coal Company - India
- The State Trading Corporation of India Ltd
- Aditya Birla Group - India
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bayan Resources Tbk. - Indonesia
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kartika Selabumi Mining - Indonesia
- Energy Link Ltd, New Zealand
- Bhoruka Overseas - Indonesia
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- Sakthi Sugars Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Edison Trading Spa - Italy
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
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