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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, 17 October 19
INDIA READIES POLICY TO ATTRACT FOREIGN INVESTMENT IN COAL MINING - REUTERS
India expects to have formulated a policy within the next two weeks to attract foreign investment to its coal mining industry, the country’s ...
Wednesday, 16 October 19
INDIA CALLS FOR A RESET OF CLIMATE DEBATE ON COAL AS A FUEL - LIVEMINT
India on Tuesday called for a reset on climate debate on coal as a fuel, in the backdrop of India becoming one of the top renewable energy producer ...
Wednesday, 16 October 19
LESSONS LEARNT FROM CREW INJURED IN HEAVY WEATHER - UK P&I CLUB COMMENTS
KNOWLEDGE TO ELEVATE
Stuart Edmonston, Loss Prevention at UK P&I Club, discusses an incident in which crew were injured whilst on deck in ...
Wednesday, 16 October 19
SHIPPING MARKET INSIGHT - INTERMODAL
In perhaps the most interesting market conditions of the past years, the tanker and the dry bulk industry have created a positive sentiment with re ...
Tuesday, 15 October 19
INDIA READIES POLICY TO ATTRACT FOREIGN INVESTMENT IN COAL MINING - REUTERS
India expects to have formulated a policy within the next two weeks to attract foreign investment to its coal mining industry, the country's Co ...
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- Posco Energy - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- Sakthi Sugars Limited - India
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Borneo Indobara - Indonesia
- Independent Power Producers Association of India
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bulk Trading Sa - Switzerland
- Renaissance Capital - South Africa
- Kapuas Tunggal Persada - Indonesia
- Energy Link Ltd, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Krishnapatnam Port Company Ltd. - India
- Indika Energy - Indonesia
- Interocean Group of Companies - India
- Vedanta Resources Plc - India
- Bhushan Steel Limited - India
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Coal and Oil Company - UAE
- Indo Tambangraya Megah - Indonesia
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Kaltim Prima Coal - Indonesia
- Rio Tinto Coal - Australia
- Ceylon Electricity Board - Sri Lanka
- Australian Coal Association
- Marubeni Corporation - India
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Mintek Dendrill Indonesia
- Gujarat Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Larsen & Toubro Limited - India
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Semirara Mining and Power Corporation, Philippines
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Commonwealth Bank - Australia
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Sarangani Energy Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- Electricity Authority, New Zealand
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Ambuja Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wood Mackenzie - Singapore
- McConnell Dowell - Australia
- Indogreen Group - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- South Luzon Thermal Energy Corporation
- Asmin Koalindo Tuhup - Indonesia
- Meenaskhi Energy Private Limited - India
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Gujarat Sidhee Cement - India
- Bukit Baiduri Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Cement Manufacturers Association - India
- Economic Council, Georgia
- LBH Netherlands Bv - Netherlands
- Videocon Industries ltd - India
- Global Green Power PLC Corporation, Philippines
- Parry Sugars Refinery, India
- ASAPP Information Group - India
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Sical Logistics Limited - India
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Globalindo Alam Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- Global Business Power Corporation, Philippines
- Latin American Coal - Colombia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- IHS Mccloskey Coal Group - USA
- SMC Global Power, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- European Bulk Services B.V. - Netherlands
- Altura Mining Limited, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Directorate Of Revenue Intelligence - India
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- IEA Clean Coal Centre - UK
- Port Waratah Coal Services - Australia
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- London Commodity Brokers - England
- GMR Energy Limited - India
- Orica Mining Services - Indonesia
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Coalindo Energy - Indonesia
- Mjunction Services Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Kumho Petrochemical, South Korea
- Billiton Holdings Pty Ltd - Australia
- CNBM International Corporation - China
- Minerals Council of Australia
- Bukit Asam (Persero) Tbk - Indonesia
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tamil Nadu electricity Board
- Anglo American - United Kingdom
- Star Paper Mills Limited - India
- Parliament of New Zealand
- Ministry of Transport, Egypt
- Vizag Seaport Private Limited - India
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- Standard Chartered Bank - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercator Lines Limited - India
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- Madhucon Powers Ltd - India
- Eastern Coal Council - USA
- OPG Power Generation Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Central Electricity Authority - India
- PTC India Limited - India
- VISA Power Limited - India
- Energy Development Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Heidelberg Cement - Germany
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- Global Coal Blending Company Limited - Australia
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Karaikal Port Pvt Ltd - India
- Makarim & Taira - Indonesia
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- Riau Bara Harum - Indonesia
- Indian Oil Corporation Limited
- White Energy Company Limited
- Malabar Cements Ltd - India
- The University of Queensland
- GAC Shipping (India) Pvt Ltd
- Goldman Sachs - Singapore
- Bhatia International Limited - India
- Metalloyd Limited - United Kingdom
- Timah Investasi Mineral - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kepco SPC Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Sinarmas Energy and Mining - Indonesia
- Deloitte Consulting - India
- Sojitz Corporation - Japan
- Banpu Public Company Limited - Thailand
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