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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, 24 October 19
PANAMAX: NEGATIVE SENTIMENT IN THE MARKET AS IT CONTINUES TO WEAKEN - FEARNLEYS
Capesize
The market has continued to slide the last week, as lack of fresh requirements and a slight oversupply of tonnage heading towards Sout ...
Wednesday, 23 October 19
CHINA'S 2019 COAL IMPORTS SET TO RISE MORE THAN 10%: ANALYSTS - REUTERS
China, the world’s top coal buyer, is on track to boost imports of the fuel by more than 10% this year, traders and analysts said on Tuesday, ...
Wednesday, 23 October 19
SHIPPING MARKET INSIGHT - INTERMODAL
Moving closer to the end of the year, we are facing what the market was expecting for quite a while, the ship repair sector booming with the shipya ...
Tuesday, 22 October 19
DRY BULK: DESPITE THE DOWNWARD CORRECTION NOTED OVER THE PAST MONTH, RATES ARE STILL HOLDING OFF AT FAVORABLE LEVELS - ALLIED SHIPPING
Despite the downward correction that has been noted in the dry bulk market over the past month, rates are still holding off at favorable levels. Ev ...
Monday, 21 October 19
SHIPPERS CHANGE COURSE AS FUEL RULES TARGET SULPHUR EMISSIONS - WOOD MACKENZIE
The International Maritime Organization (IMO), the industry’s regulator, will require all ships to reduce the level of sulphur in their engin ...
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- Pipit Mutiara Jaya. PT, Indonesia
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Agrawal Coal Company - India
- Singapore Mercantile Exchange
- Savvy Resources Ltd - HongKong
- Alfred C Toepfer International GmbH - Germany
- Chamber of Mines of South Africa
- Borneo Indobara - Indonesia
- IEA Clean Coal Centre - UK
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Sojitz Corporation - Japan
- Directorate General of MIneral and Coal - Indonesia
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Power Finance Corporation Ltd., India
- Rashtriya Ispat Nigam Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Indian Oil Corporation Limited
- Pendopo Energi Batubara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Essar Steel Hazira Ltd - India
- Mjunction Services Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Planning Commission, India
- Central Java Power - Indonesia
- Samtan Co., Ltd - South Korea
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Cement Manufacturers Association - India
- PNOC Exploration Corporation - Philippines
- Parry Sugars Refinery, India
- Kohat Cement Company Ltd. - Pakistan
- Bahari Cakrawala Sebuku - Indonesia
- Energy Development Corp, Philippines
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Bharathi Cement Corporation - India
- Toyota Tsusho Corporation, Japan
- Vedanta Resources Plc - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Bayan Resources Tbk. - Indonesia
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Baramulti Group, Indonesia
- Uttam Galva Steels Limited - India
- Orica Mining Services - Indonesia
- Attock Cement Pakistan Limited
- Price Waterhouse Coopers - Russia
- PowerSource Philippines DevCo
- IHS Mccloskey Coal Group - USA
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Sarangani Energy Corporation, Philippines
- Petron Corporation, Philippines
- SMC Global Power, Philippines
- Antam Resourcindo - Indonesia
- Australian Coal Association
- Malabar Cements Ltd - India
- Thai Mozambique Logistica
- Sakthi Sugars Limited - India
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Bukit Baiduri Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Kaltim Prima Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- PTC India Limited - India
- Marubeni Corporation - India
- Port Waratah Coal Services - Australia
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Meralco Power Generation, Philippines
- Indo Tambangraya Megah - Indonesia
- Kumho Petrochemical, South Korea
- Timah Investasi Mineral - Indoneisa
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Barasentosa Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Dalmia Cement Bharat India
- Chettinad Cement Corporation Ltd - India
- Carbofer General Trading SA - India
- Makarim & Taira - Indonesia
- Trasteel International SA, Italy
- Salva Resources Pvt Ltd - India
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Vizag Seaport Private Limited - India
- CIMB Investment Bank - Malaysia
- Sindya Power Generating Company Private Ltd
- Bangladesh Power Developement Board
- The University of Queensland
- Mercuria Energy - Indonesia
- Heidelberg Cement - Germany
- Latin American Coal - Colombia
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Anglo American - United Kingdom
- ICICI Bank Limited - India
- Siam City Cement PLC, Thailand
- Holcim Trading Pte Ltd - Singapore
- SMG Consultants - Indonesia
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- Bhatia International Limited - India
- Cigading International Bulk Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Binh Thuan Hamico - Vietnam
- South Luzon Thermal Energy Corporation
- Riau Bara Harum - Indonesia
- Australian Commodity Traders Exchange
- Straits Asia Resources Limited - Singapore
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
- Global Green Power PLC Corporation, Philippines
- Xindia Steels Limited - India
- Posco Energy - South Korea
- Kalimantan Lumbung Energi - Indonesia
- GMR Energy Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Georgia Ports Authority, United States
- Independent Power Producers Association of India
- The State Trading Corporation of India Ltd
- Maheswari Brothers Coal Limited - India
- Star Paper Mills Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Gujarat Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Metalloyd Limited - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement - Thailand
- Sree Jayajothi Cements Limited - India
- GAC Shipping (India) Pvt Ltd
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- Krishnapatnam Port Company Ltd. - India
- International Coal Ventures Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Indian Energy Exchange, India
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- Interocean Group of Companies - India
- Bukit Asam (Persero) Tbk - Indonesia
- Goldman Sachs - Singapore
- MS Steel International - UAE
- London Commodity Brokers - England
- Kapuas Tunggal Persada - Indonesia
- Wood Mackenzie - Singapore
- TeaM Sual Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- OPG Power Generation Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Lanco Infratech Ltd - India
- Semirara Mining Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- ASAPP Information Group - India
- Miang Besar Coal Terminal - Indonesia
- Indonesian Coal Mining Association
- Central Electricity Authority - India
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- Larsen & Toubro Limited - India
- Aboitiz Power Corporation - Philippines
- Bhushan Steel Limited - India
- Electricity Generating Authority of Thailand
- Parliament of New Zealand
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Thiess Contractors Indonesia
- Africa Commodities Group - South Africa
- Minerals Council of Australia
- Medco Energi Mining Internasional
- Asmin Koalindo Tuhup - Indonesia
- Kideco Jaya Agung - Indonesia
- Orica Australia Pty. Ltd.
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- Economic Council, Georgia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Coastal Gujarat Power Limited - India
- Banpu Public Company Limited - Thailand
- Semirara Mining and Power Corporation, Philippines
- Ministry of Transport, Egypt
- Indogreen Group - Indonesia
- The Treasury - Australian Government
- Offshore Bulk Terminal Pte Ltd, Singapore
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