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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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Monday, 04 November 19
PANAMAX: WEAKER SENTIMENTS CONTINUED FROM LAST WEEK, WITH RATES FURTHER SOFTENING IN BOTH BASINS - BALTIC BRIEFING
Capesize
The Capesize market meandered slightly upwards this week before giving back much of its gains mid-week. Opening the week at $24,945, t ...
Thursday, 31 October 19
U.S. COAL-FIRED POWER PLANTS SCHEDULED TO SHUT - REUTERS
U.S. power companies expect to retire or convert from coal to gas over 13,800 megawatts (MW) of coal-fired plants in 2019 after shutting over 13,30 ...
Thursday, 31 October 19
SE ASIA MAY BECOME NET FOSSIL FUEL IMPORTER IN COMING YEARS - IEA
Southeast Asia is set to become a key driver of world energy trends over the next 20 years as its energy demand grows at twice the global average, ...
Monday, 28 October 19
ULTRAMAX: ASIA RATES REMAINED UNDER PRESSURE WITH THE NORTH LACKING FRESH ENQUIRY - BALTIC BRIEFING
Capesize
The end of the week brought about a small increase in sentiment heading into a long weekend for some regions. After sustaining a drop ...
Thursday, 24 October 19
AUSTRALIA'S HOPES TO EXPAND COAL EXPORTS IN SOUTH-EAST ASIA 'DELUSIONAL', EXPERTS SAY - THE GUARDIAN
The number of new coal-fired power plants starting construction across south-east Asia has fallen markedly over the past two years as Australia has ...
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- Samtan Co., Ltd - South Korea
- Marubeni Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jorong Barutama Greston.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Holcim Trading Pte Ltd - Singapore
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- AsiaOL BioFuels Corp., Philippines
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Kobexindo Tractors - Indoneisa
- Savvy Resources Ltd - HongKong
- Eastern Coal Council - USA
- TNB Fuel Sdn Bhd - Malaysia
- Baramulti Group, Indonesia
- Indian Energy Exchange, India
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- Pendopo Energi Batubara - Indonesia
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Wood Mackenzie - Singapore
- Chettinad Cement Corporation Ltd - India
- Posco Energy - South Korea
- Bulk Trading Sa - Switzerland
- Aditya Birla Group - India
- Bhoruka Overseas - Indonesia
- Sindya Power Generating Company Private Ltd
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Billiton Holdings Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- PTC India Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Toyota Tsusho Corporation, Japan
- New Zealand Coal & Carbon
- Singapore Mercantile Exchange
- SMC Global Power, Philippines
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Aboitiz Power Corporation - Philippines
- Electricity Generating Authority of Thailand
- Asmin Koalindo Tuhup - Indonesia
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Maheswari Brothers Coal Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Borneo Indobara - Indonesia
- Bukit Baiduri Energy - Indonesia
- Standard Chartered Bank - UAE
- Thiess Contractors Indonesia
- Independent Power Producers Association of India
- Planning Commission, India
- Interocean Group of Companies - India
- Vizag Seaport Private Limited - India
- MS Steel International - UAE
- Bangladesh Power Developement Board
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Miang Besar Coal Terminal - Indonesia
- GMR Energy Limited - India
- Alfred C Toepfer International GmbH - Germany
- Formosa Plastics Group - Taiwan
- Parry Sugars Refinery, India
- Global Green Power PLC Corporation, Philippines
- McConnell Dowell - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Riau Bara Harum - Indonesia
- Price Waterhouse Coopers - Russia
- Grasim Industreis Ltd - India
- Directorate Of Revenue Intelligence - India
- Cigading International Bulk Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- Malabar Cements Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Ministry of Finance - Indonesia
- Energy Development Corp, Philippines
- Uttam Galva Steels Limited - India
- India Bulls Power Limited - India
- Tamil Nadu electricity Board
- Vijayanagar Sugar Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Australian Coal Association
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Attock Cement Pakistan Limited
- Rio Tinto Coal - Australia
- Xindia Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- GVK Power & Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- CNBM International Corporation - China
- Heidelberg Cement - Germany
- Mercator Lines Limited - India
- Romanian Commodities Exchange
- Globalindo Alam Lestari - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Power Finance Corporation Ltd., India
- Directorate General of MIneral and Coal - Indonesia
- Wilmar Investment Holdings
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- Karbindo Abesyapradhi - Indoneisa
- Therma Luzon, Inc, Philippines
- Chamber of Mines of South Africa
- Jindal Steel & Power Ltd - India
- The Treasury - Australian Government
- Makarim & Taira - Indonesia
- Indo Tambangraya Megah - Indonesia
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Cement Manufacturers Association - India
- Medco Energi Mining Internasional
- Electricity Authority, New Zealand
- Gujarat Sidhee Cement - India
- Indogreen Group - Indonesia
- Deloitte Consulting - India
- PowerSource Philippines DevCo
- Metalloyd Limited - United Kingdom
- Iligan Light & Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Sakthi Sugars Limited - India
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- Binh Thuan Hamico - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Mercuria Energy - Indonesia
- Star Paper Mills Limited - India
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Edison Trading Spa - Italy
- Bharathi Cement Corporation - India
- Minerals Council of Australia
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Central Electricity Authority - India
- IEA Clean Coal Centre - UK
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Bukit Makmur.PT - Indonesia
- Orica Australia Pty. Ltd.
- Energy Link Ltd, New Zealand
- Straits Asia Resources Limited - Singapore
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Ministry of Transport, Egypt
- CIMB Investment Bank - Malaysia
- Meralco Power Generation, Philippines
- Mjunction Services Limited - India
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- ASAPP Information Group - India
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Renaissance Capital - South Africa
- White Energy Company Limited
- Global Business Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- Tata Chemicals Ltd - India
- Latin American Coal - Colombia
- Bhushan Steel Limited - India
- Ind-Barath Power Infra Limited - India
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- The University of Queensland
- Pipit Mutiara Jaya. PT, Indonesia
- LBH Netherlands Bv - Netherlands
- Videocon Industries ltd - India
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