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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, 31 July 19
SHIPPING MARKET INSIGHT - INTERMODAL
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Capesize
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Wednesday, 24 July 19
SHIPPING MARKET INSIGHT - INTERMODAL
Tonnes of ink has been spent analysing the rebound of the dry bulk market the last weeks with the most representative example being the rising perf ...
Wednesday, 24 July 19
COAL'S DEMISE QUICKENS IN EUROPE AS MARKET SHIFT IDLES PLANTS - BLOOMBERG
Commodity markets are stripping away the case for coal in Europe, moving quicker than government efforts to close the most polluting power plants.
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- Kalimantan Lumbung Energi - Indonesia
- Goldman Sachs - Singapore
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- Siam City Cement PLC, Thailand
- Rashtriya Ispat Nigam Limited - India
- Thiess Contractors Indonesia
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- Vijayanagar Sugar Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Larsen & Toubro Limited - India
- Electricity Authority, New Zealand
- Eastern Energy - Thailand
- Parliament of New Zealand
- Ambuja Cements Ltd - India
- Bhushan Steel Limited - India
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- TNB Fuel Sdn Bhd - Malaysia
- Bharathi Cement Corporation - India
- Indian Oil Corporation Limited
- Metalloyd Limited - United Kingdom
- Therma Luzon, Inc, Philippines
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- Videocon Industries ltd - India
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Standard Chartered Bank - UAE
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Star Paper Mills Limited - India
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- Kideco Jaya Agung - Indonesia
- The University of Queensland
- Energy Link Ltd, New Zealand
- GAC Shipping (India) Pvt Ltd
- South Luzon Thermal Energy Corporation
- Singapore Mercantile Exchange
- Coal and Oil Company - UAE
- Interocean Group of Companies - India
- Commonwealth Bank - Australia
- Manunggal Multi Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Grasim Industreis Ltd - India
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Global Business Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Central Java Power - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The Treasury - Australian Government
- Alfred C Toepfer International GmbH - Germany
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- Jorong Barutama Greston.PT - Indonesia
- New Zealand Coal & Carbon
- Marubeni Corporation - India
- Globalindo Alam Lestari - Indonesia
- Trasteel International SA, Italy
- MS Steel International - UAE
- Gujarat Mineral Development Corp Ltd - India
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- Simpson Spence & Young - Indonesia
- Samtan Co., Ltd - South Korea
- Ministry of Mines - Canada
- European Bulk Services B.V. - Netherlands
- Xindia Steels Limited - India
- Jaiprakash Power Ventures ltd
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Latin American Coal - Colombia
- Sakthi Sugars Limited - India
- Timah Investasi Mineral - Indoneisa
- Coastal Gujarat Power Limited - India
- Karaikal Port Pvt Ltd - India
- Australian Commodity Traders Exchange
- Kohat Cement Company Ltd. - Pakistan
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Straits Asia Resources Limited - Singapore
- Semirara Mining Corp, Philippines
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Ministry of Finance - Indonesia
- Barasentosa Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Electricity Generating Authority of Thailand
- Baramulti Group, Indonesia
- Kaltim Prima Coal - Indonesia
- Malabar Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Directorate Of Revenue Intelligence - India
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- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Sojitz Corporation - Japan
- Directorate General of MIneral and Coal - Indonesia
- Coalindo Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Rio Tinto Coal - Australia
- Economic Council, Georgia
- Attock Cement Pakistan Limited
- Kepco SPC Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Bukit Makmur.PT - Indonesia
- Africa Commodities Group - South Africa
- Wood Mackenzie - Singapore
- Central Electricity Authority - India
- PowerSource Philippines DevCo
- IEA Clean Coal Centre - UK
- Oldendorff Carriers - Singapore
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Sarangani Energy Corporation, Philippines
- Australian Coal Association
- Uttam Galva Steels Limited - India
- Salva Resources Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Energy Development Corp, Philippines
- Wilmar Investment Holdings
- Madhucon Powers Ltd - India
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Indonesian Coal Mining Association
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- McConnell Dowell - Australia
- Indika Energy - Indonesia
- Heidelberg Cement - Germany
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Jindal Steel & Power Ltd - India
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- SMC Global Power, Philippines
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Karbindo Abesyapradhi - Indoneisa
- Agrawal Coal Company - India
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Pendopo Energi Batubara - Indonesia
- CIMB Investment Bank - Malaysia
- Lanco Infratech Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- Bhatia International Limited - India
- PNOC Exploration Corporation - Philippines
- Anglo American - United Kingdom
- Ind-Barath Power Infra Limited - India
- Meralco Power Generation, Philippines
- Indogreen Group - Indonesia
- Independent Power Producers Association of India
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- ICICI Bank Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Aboitiz Power Corporation - Philippines
- The State Trading Corporation of India Ltd
- Asmin Koalindo Tuhup - Indonesia
- SMG Consultants - Indonesia
- SN Aboitiz Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Port Waratah Coal Services - Australia
- Altura Mining Limited, Indonesia
- Sical Logistics Limited - India
- PTC India Limited - India
- Makarim & Taira - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vizag Seaport Private Limited - India
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Planning Commission, India
- Formosa Plastics Group - Taiwan
- Iligan Light & Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Thai Mozambique Logistica
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