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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, 16 September 19
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Monday, 16 September 19
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Sunday, 15 September 19
SUPRAMAX / ULTRAMAX: MORE STEMS WERE NOTICED GOING TO VIETNAM FROM INDONESIA - BALTIC BRIEFING
Capesize
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- Asmin Koalindo Tuhup - Indonesia
- MS Steel International - UAE
- Makarim & Taira - Indonesia
- Bangladesh Power Developement Board
- New Zealand Coal & Carbon
- Binh Thuan Hamico - Vietnam
- Global Business Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Central Java Power - Indonesia
- Australian Coal Association
- Energy Development Corp, Philippines
- Renaissance Capital - South Africa
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Ministry of Finance - Indonesia
- Mintek Dendrill Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Globalindo Alam Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Sical Logistics Limited - India
- Savvy Resources Ltd - HongKong
- Aboitiz Power Corporation - Philippines
- Wilmar Investment Holdings
- Ministry of Mines - Canada
- CNBM International Corporation - China
- Siam City Cement - Thailand
- International Coal Ventures Pvt Ltd - India
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
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- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Heidelberg Cement - Germany
- Medco Energi Mining Internasional
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- Manunggal Multi Energi - Indonesia
- India Bulls Power Limited - India
- Eastern Energy - Thailand
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Leighton Contractors Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- SN Aboitiz Power Inc, Philippines
- London Commodity Brokers - England
- Ceylon Electricity Board - Sri Lanka
- Maharashtra Electricity Regulatory Commission - India
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- Timah Investasi Mineral - Indoneisa
- Grasim Industreis Ltd - India
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Singapore Mercantile Exchange
- Iligan Light & Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- Latin American Coal - Colombia
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- VISA Power Limited - India
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- GN Power Mariveles Coal Plant, Philippines
- Star Paper Mills Limited - India
- Indian Oil Corporation Limited
- The Treasury - Australian Government
- Jaiprakash Power Ventures ltd
- Alfred C Toepfer International GmbH - Germany
- GVK Power & Infra Limited - India
- Power Finance Corporation Ltd., India
- Holcim Trading Pte Ltd - Singapore
- SMG Consultants - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Wood Mackenzie - Singapore
- Miang Besar Coal Terminal - Indonesia
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- Indogreen Group - Indonesia
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- Ambuja Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Malabar Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Indo Tambangraya Megah - Indonesia
- The University of Queensland
- Eastern Coal Council - USA
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- Bukit Makmur.PT - Indonesia
- Siam City Cement PLC, Thailand
- GMR Energy Limited - India
- Electricity Authority, New Zealand
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Electricity Generating Authority of Thailand
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Xindia Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- Straits Asia Resources Limited - Singapore
- Cement Manufacturers Association - India
- ICICI Bank Limited - India
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Meralco Power Generation, Philippines
- GAC Shipping (India) Pvt Ltd
- Pendopo Energi Batubara - Indonesia
- Indian Energy Exchange, India
- Oldendorff Carriers - Singapore
- Economic Council, Georgia
- Sojitz Corporation - Japan
- Kaltim Prima Coal - Indonesia
- Mjunction Services Limited - India
- Kartika Selabumi Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- IHS Mccloskey Coal Group - USA
- Directorate Of Revenue Intelligence - India
- Marubeni Corporation - India
- Chettinad Cement Corporation Ltd - India
- Coalindo Energy - Indonesia
- PowerSource Philippines DevCo
- Kapuas Tunggal Persada - Indonesia
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Coal and Oil Company - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coastal Gujarat Power Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Aditya Birla Group - India
- Salva Resources Pvt Ltd - India
- Tata Chemicals Ltd - India
- AsiaOL BioFuels Corp., Philippines
- South Luzon Thermal Energy Corporation
- Kideco Jaya Agung - Indonesia
- Ministry of Transport, Egypt
- Attock Cement Pakistan Limited
- Global Green Power PLC Corporation, Philippines
- Agrawal Coal Company - India
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Africa Commodities Group - South Africa
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- Bukit Baiduri Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Maheswari Brothers Coal Limited - India
- Interocean Group of Companies - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- White Energy Company Limited
- Petrochimia International Co. Ltd.- Taiwan
- CIMB Investment Bank - Malaysia
- Minerals Council of Australia
- Trasteel International SA, Italy
- Uttam Galva Steels Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Sree Jayajothi Cements Limited - India
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- Australian Commodity Traders Exchange
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Antam Resourcindo - Indonesia
- McConnell Dowell - Australia
- LBH Netherlands Bv - Netherlands
- Bayan Resources Tbk. - Indonesia
- Georgia Ports Authority, United States
- Intertek Mineral Services - Indonesia
- Anglo American - United Kingdom
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Energy Link Ltd, New Zealand
- Posco Energy - South Korea
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