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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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Friday, 20 September 19
INDIA TO INVITE BIDS FOR COMMERCIAL COAL MINING IN DECEMBER - MINISTER FOR COAL
India aims to begin the process of holding the first round of commercial coal mining auctions December end, Minister for Coal, Mines and Parliament ...
Friday, 20 September 19
INDIA: ECONOMIC SLOWDOWN IMPACTS COAL IMPORT CARGO IN H1 FY20 - PTI
Economic slowdown has impacted coal import cargo in the first half of this fiscal, as overall cargo growth at major ports registered a marginal gro ...
Wednesday, 18 September 19
SHIPPING MARKET INSIGHT - INTERMODAL
During the first week of September, I had the privilege of attending the Donsö Shipping Meet 2019, in Donsö, a small island of around 1,& ...
Tuesday, 17 September 19
PANAMA SHIP REGISTRY MODERNIZES SHIP REGISTRATION
The Panama Ship Registry has announced it will integrate in a single platform “Electronic Ship Registration System (ESRS)” the present ...
Tuesday, 17 September 19
THE DRY BULK FREIGHT MARKET IS ALREADY ON A DOWNWARD CORRECTION - ALLIED
Here we are again, just a breath before the final quarter of the year. Under typical circumstances and on the basis of what we have seen during the ...
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- Essar Steel Hazira Ltd - India
- Formosa Plastics Group - Taiwan
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- Coalindo Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Power Finance Corporation Ltd., India
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Economic Council, Georgia
- Trasteel International SA, Italy
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Makmur.PT - Indonesia
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- The State Trading Corporation of India Ltd
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
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- Indogreen Group - Indonesia
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- White Energy Company Limited
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Romanian Commodities Exchange
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement PLC, Thailand
- Maheswari Brothers Coal Limited - India
- Kepco SPC Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- GMR Energy Limited - India
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Kobexindo Tractors - Indoneisa
- Coastal Gujarat Power Limited - India
- Star Paper Mills Limited - India
- Standard Chartered Bank - UAE
- Energy Development Corp, Philippines
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- IHS Mccloskey Coal Group - USA
- Independent Power Producers Association of India
- Coal and Oil Company - UAE
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kohat Cement Company Ltd. - Pakistan
- Sinarmas Energy and Mining - Indonesia
- The Treasury - Australian Government
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Baramulti Group, Indonesia
- Tamil Nadu electricity Board
- PTC India Limited - India
- Ministry of Transport, Egypt
- Meenaskhi Energy Private Limited - India
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Mercator Lines Limited - India
- Globalindo Alam Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Semirara Mining Corp, Philippines
- Central Java Power - Indonesia
- Cigading International Bulk Terminal - Indonesia
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- Siam City Cement - Thailand
- Bulk Trading Sa - Switzerland
- Ind-Barath Power Infra Limited - India
- Petron Corporation, Philippines
- India Bulls Power Limited - India
- Sindya Power Generating Company Private Ltd
- Electricity Authority, New Zealand
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Mercuria Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Grasim Industreis Ltd - India
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Simpson Spence & Young - Indonesia
- Indian Energy Exchange, India
- Larsen & Toubro Limited - India
- The University of Queensland
- Global Green Power PLC Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Barasentosa Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- Interocean Group of Companies - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jindal Steel & Power Ltd - India
- Posco Energy - South Korea
- Electricity Generating Authority of Thailand
- Cement Manufacturers Association - India
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- Gujarat Sidhee Cement - India
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- SMG Consultants - Indonesia
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- Dalmia Cement Bharat India
- Parry Sugars Refinery, India
- Karbindo Abesyapradhi - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Ministry of Finance - Indonesia
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Thai Mozambique Logistica
- Kaltim Prima Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Toyota Tsusho Corporation, Japan
- Vizag Seaport Private Limited - India
- Meralco Power Generation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Aditya Birla Group - India
- Commonwealth Bank - Australia
- Bukit Baiduri Energy - Indonesia
- Ministry of Mines - Canada
- Marubeni Corporation - India
- Directorate Of Revenue Intelligence - India
- Manunggal Multi Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- Sakthi Sugars Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Carbofer General Trading SA - India
- Bukit Asam (Persero) Tbk - Indonesia
- Agrawal Coal Company - India
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Antam Resourcindo - Indonesia
- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Anglo American - United Kingdom
- IEA Clean Coal Centre - UK
- LBH Netherlands Bv - Netherlands
- Orica Mining Services - Indonesia
- Oldendorff Carriers - Singapore
- Makarim & Taira - Indonesia
- Xindia Steels Limited - India
- Eastern Coal Council - USA
- Kalimantan Lumbung Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
- Renaissance Capital - South Africa
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- New Zealand Coal & Carbon
- Bhoruka Overseas - Indonesia
- Rio Tinto Coal - Australia
- Wilmar Investment Holdings
- Salva Resources Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Madhucon Powers Ltd - India
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- Kapuas Tunggal Persada - Indonesia
- Global Business Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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