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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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Wednesday, 11 September 19
THE INDONESIAN COAL PRICE REFERENCE FELL HEAVILY IN SEPTEMBER
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...
Wednesday, 11 September 19
SHIPPING MARKET INSIGHT - INTERMODAL
We are going through one of the rare instances where we see optimism building in the dry bulk industry and, as the momentum is still going, the bel ...
Monday, 09 September 19
INDIAN COMPANIES READY TO INVEST IN DEVELOPMENT OF NEW COAL DEPOSITS IN RUSSIA'S YAKUTIA - TASS
Indian metallurgical companies, which received trial batches of coal from Kolmar mining company, are satisfied with the quality of the products and ...
Monday, 09 September 19
COLOMBIA COAL OUTPUT DOWN YEAR-ON-YEAR IN 2ND QUARTER - REUTERS
Colombia, the world’s fifth-largest exporter of coal, produced 18.9 million tonnes of the fuel in the second quarter, down 4.5% from the same ...
Monday, 09 September 19
ULTRAMAX: ASIA A 58,000-TONNER FIXED DELIVERY FUZHOU, VIA INDONESIA, REDELIVERY CHINA, AT $12,800
Capesize
0px The market reached new heights this week as the 5TC topped $38,014, a level not seen in the sector since 2013. Fridays 5TC closed ...
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- Antam Resourcindo - Indonesia
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- White Energy Company Limited
- Directorate General of MIneral and Coal - Indonesia
- Central Java Power - Indonesia
- Thiess Contractors Indonesia
- Borneo Indobara - Indonesia
- Indika Energy - Indonesia
- Uttam Galva Steels Limited - India
- CNBM International Corporation - China
- Larsen & Toubro Limited - India
- Petron Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Essar Steel Hazira Ltd - India
- Bhatia International Limited - India
- Parliament of New Zealand
- Mercator Lines Limited - India
- Metalloyd Limited - United Kingdom
- Romanian Commodities Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Cigading International Bulk Terminal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- GMR Energy Limited - India
- Bayan Resources Tbk. - Indonesia
- Directorate Of Revenue Intelligence - India
- Miang Besar Coal Terminal - Indonesia
- Bhushan Steel Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
- Eastern Energy - Thailand
- Samtan Co., Ltd - South Korea
- Kideco Jaya Agung - Indonesia
- Ministry of Mines - Canada
- Vizag Seaport Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Minerals Council of Australia
- Ceylon Electricity Board - Sri Lanka
- SN Aboitiz Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Indian Oil Corporation Limited
- Merrill Lynch Commodities Europe
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Bukit Baiduri Energy - Indonesia
- Thai Mozambique Logistica
- Heidelberg Cement - Germany
- Edison Trading Spa - Italy
- Dalmia Cement Bharat India
- Sojitz Corporation - Japan
- Banpu Public Company Limited - Thailand
- Jindal Steel & Power Ltd - India
- South Luzon Thermal Energy Corporation
- Kobexindo Tractors - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- Makarim & Taira - Indonesia
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- OPG Power Generation Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Ministry of Transport, Egypt
- Tata Chemicals Ltd - India
- Goldman Sachs - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Simpson Spence & Young - Indonesia
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- Binh Thuan Hamico - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Standard Chartered Bank - UAE
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Aditya Birla Group - India
- Maheswari Brothers Coal Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- GVK Power & Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- GAC Shipping (India) Pvt Ltd
- Barasentosa Lestari - Indonesia
- ASAPP Information Group - India
- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Australian Coal Association
- Chamber of Mines of South Africa
- McConnell Dowell - Australia
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- Global Green Power PLC Corporation, Philippines
- Videocon Industries ltd - India
- Price Waterhouse Coopers - Russia
- Electricity Generating Authority of Thailand
- Salva Resources Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- London Commodity Brokers - England
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Iligan Light & Power Inc, Philippines
- Interocean Group of Companies - India
- Coalindo Energy - Indonesia
- VISA Power Limited - India
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- LBH Netherlands Bv - Netherlands
- New Zealand Coal & Carbon
- Global Business Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Oldendorff Carriers - Singapore
- PowerSource Philippines DevCo
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- Latin American Coal - Colombia
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Planning Commission, India
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- SMC Global Power, Philippines
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Authority, New Zealand
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- SMG Consultants - Indonesia
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bangladesh Power Developement Board
- Kartika Selabumi Mining - Indonesia
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Mjunction Services Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Africa Commodities Group - South Africa
- GN Power Mariveles Coal Plant, Philippines
- Sarangani Energy Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- Carbofer General Trading SA - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Indo Tambangraya Megah - Indonesia
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
- Kepco SPC Power Corporation, Philippines
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Renaissance Capital - South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Coal Council - USA
- PTC India Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Australian Commodity Traders Exchange
- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Bharathi Cement Corporation - India
- The Treasury - Australian Government
- Energy Link Ltd, New Zealand
- Orica Australia Pty. Ltd.
- Vedanta Resources Plc - India
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Neyveli Lignite Corporation Ltd, - India
- Tamil Nadu electricity Board
- Indian Energy Exchange, India
- Grasim Industreis Ltd - India
- The University of Queensland
- Cement Manufacturers Association - India
- Star Paper Mills Limited - India
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- Jaiprakash Power Ventures ltd
- Gujarat Sidhee Cement - India
- Karbindo Abesyapradhi - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Mintek Dendrill Indonesia
- International Coal Ventures Pvt Ltd - India
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