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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, 04 September 19
SHIPPING MARKET INSIGHT - INTERMODAL
For yet another time, the market seems to have its own drivers. After a very disappointing first half, the recent recovery in the shipping market i ...
Tuesday, 20 August 19
NORDEN HAS BEEN AWARDED A 3-YEAR CONTRACT FOR THE TRANSPORTATION OF COAL FROM INDONESIA TO HONG KONG
NORDEN has been awarded a 3-year contract with a power company in Hong Kong for the transportation of coal from Indonesia to Hong Kong.
...
Tuesday, 20 August 19
THE AUGUST 2019 INDONESIAN COAL PRICE REFERENCE POSTS THE FIRST MONTHLY GAIN SINCE AUGUST 2018
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...
Monday, 19 August 19
INDONESIAN COAL RUNS, A 82,000DWT SHIP WAS FIXED DELIVERY CHINA VIA INDONESIA, REDELIVERY JAPAN, IN THE MID $16,000S - BALTIC BRIEFING
Capesize
The Capesize market was buoyant in both basins this week, posting gains across the board. After bottoming out the previous week, rates ...
Sunday, 11 August 19
ULTRAMAX: A 58,000DWT VESSEL OPEN KEMAMAN FIXED FOR TWO TO THREE LADEN LEGS, REDELIVERY SINGAPORE-JAPAN, AT $12,250 - BALTIC BRIEFING
Capesize
With typhoon Lekima gathering pace, numerous China ports were closed by the end of the week and will likely be for two to three days. ...
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- Economic Council, Georgia
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- Mintek Dendrill Indonesia
- Interocean Group of Companies - India
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Savvy Resources Ltd - HongKong
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
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- Electricity Generating Authority of Thailand
- Miang Besar Coal Terminal - Indonesia
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- Standard Chartered Bank - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Central Java Power - Indonesia
- Port Waratah Coal Services - Australia
- Directorate Of Revenue Intelligence - India
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- TeaM Sual Corporation - Philippines
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- Minerals Council of Australia
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- GAC Shipping (India) Pvt Ltd
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- Kumho Petrochemical, South Korea
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- Goldman Sachs - Singapore
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- Electricity Authority, New Zealand
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- Orica Mining Services - Indonesia
- Barasentosa Lestari - Indonesia
- Star Paper Mills Limited - India
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- Siam City Cement - Thailand
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- Bangladesh Power Developement Board
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- Asmin Koalindo Tuhup - Indonesia
- Karaikal Port Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- GN Power Mariveles Coal Plant, Philippines
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- The State Trading Corporation of India Ltd
- Timah Investasi Mineral - Indoneisa
- Planning Commission, India
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
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- Indogreen Group - Indonesia
- Ind-Barath Power Infra Limited - India
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- McConnell Dowell - Australia
- Indika Energy - Indonesia
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- Australian Commodity Traders Exchange
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- Riau Bara Harum - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Thiess Contractors Indonesia
- Ministry of Mines - Canada
- Oldendorff Carriers - Singapore
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- Tamil Nadu electricity Board
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- Central Electricity Authority - India
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- Indonesian Coal Mining Association
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- Bukit Makmur.PT - Indonesia
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- Bulk Trading Sa - Switzerland
- Bukit Baiduri Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Leighton Contractors Pty Ltd - Australia
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Manunggal Multi Energi - Indonesia
- CIMB Investment Bank - Malaysia
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- Kideco Jaya Agung - Indonesia
- Singapore Mercantile Exchange
- Orica Australia Pty. Ltd.
- Price Waterhouse Coopers - Russia
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- Tata Chemicals Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Energy Development Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Jorong Barutama Greston.PT - Indonesia
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- Sical Logistics Limited - India
- Mercator Lines Limited - India
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Samtan Co., Ltd - South Korea
- Pendopo Energi Batubara - Indonesia
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- Toyota Tsusho Corporation, Japan
- Vedanta Resources Plc - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Heidelberg Cement - Germany
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
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- Petrochimia International Co. Ltd.- Taiwan
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- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- Jaiprakash Power Ventures ltd
- Global Green Power PLC Corporation, Philippines
- The University of Queensland
- Bhushan Steel Limited - India
- Wood Mackenzie - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Kaltim Prima Coal - Indonesia
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
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- Vijayanagar Sugar Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The Treasury - Australian Government
- Directorate General of MIneral and Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
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- Indian Energy Exchange, India
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