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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, 22 July 19
SUPRAMAX: THE ASIAN ARENA SAW INCREASED ACTIVITY AND STRONGER NUMBERS BEING CONCLUDED; INDONESIAN ROUNDS REMAINED FIRM - BALTIC BRIEFING
Capesize
Another week of gains as the Atlantic basin continues to be pressurised on tonnage and Brazilian cargoes keep up a steady flow. The Ca ...
Thursday, 18 July 19
WORLD TRADE IN HARD COAL ROSE BY 4.7% IN 2018 - GERMANY COAL IMPORTERS ASSOCIATION
World Trade in Hard Coal Rose by 4.7% in 2018
Hard Coal Can Prevent Stress in the Electric Power System in Germany
• Sharp decl ...
Wednesday, 17 July 19
MARKET INSIGHT - INTERMODAL
The Strait of Hormuz is one of the most important waterways in the world, connecting crude producers in the Middle East with key markets in the res ...
Tuesday, 16 July 19
KING COAL RULES IN JAPAN AS POWER UTILITIES IN THRALL TO LOW-COST FUEL - REUTERS
Japanese utilities will rely on the return of coal-fired power plants from maintenance to meet peak electricity demand this summer, highlighting th ...
Tuesday, 16 July 19
SUPRAMAX: THE ASIAN ARENA WAS SPLIT, WITH A BUILD-UP OF TONNAGE AND LACK OF ENQUIRY IN THE NORTH - BALTIC BRIEFING
Capesize
It was a Brazilian affair with a strong splash of bunkers characterising the Capesize market over the past week. Largely traded in Eur ...
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- Kohat Cement Company Ltd. - Pakistan
- Indo Tambangraya Megah - Indonesia
- PNOC Exploration Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Global Business Power Corporation, Philippines
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- Indika Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aditya Birla Group - India
- Borneo Indobara - Indonesia
- Siam City Cement PLC, Thailand
- Kaltim Prima Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Kobexindo Tractors - Indoneisa
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Formosa Plastics Group - Taiwan
- Iligan Light & Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sical Logistics Limited - India
- Ceylon Electricity Board - Sri Lanka
- Bukit Baiduri Energy - Indonesia
- Sakthi Sugars Limited - India
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- Ministry of Finance - Indonesia
- Manunggal Multi Energi - Indonesia
- Oldendorff Carriers - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Global Coal Blending Company Limited - Australia
- IEA Clean Coal Centre - UK
- Essar Steel Hazira Ltd - India
- Global Green Power PLC Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Toyota Tsusho Corporation, Japan
- Ministry of Transport, Egypt
- Lanco Infratech Ltd - India
- TeaM Sual Corporation - Philippines
- Videocon Industries ltd - India
- Wood Mackenzie - Singapore
- Petron Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Straits Asia Resources Limited - Singapore
- Kepco SPC Power Corporation, Philippines
- Medco Energi Mining Internasional
- Port Waratah Coal Services - Australia
- Uttam Galva Steels Limited - India
- Mintek Dendrill Indonesia
- Jaiprakash Power Ventures ltd
- Parliament of New Zealand
- Cement Manufacturers Association - India
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- SMG Consultants - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Deloitte Consulting - India
- Tata Chemicals Ltd - India
- Riau Bara Harum - Indonesia
- Timah Investasi Mineral - Indoneisa
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- The University of Queensland
- Indian Oil Corporation Limited
- Parry Sugars Refinery, India
- Bukit Asam (Persero) Tbk - Indonesia
- Malabar Cements Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dalmia Cement Bharat India
- Makarim & Taira - Indonesia
- Coastal Gujarat Power Limited - India
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Economic Council, Georgia
- White Energy Company Limited
- Maharashtra Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Africa Commodities Group - South Africa
- Semirara Mining Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- India Bulls Power Limited - India
- Indogreen Group - Indonesia
- Larsen & Toubro Limited - India
- Minerals Council of Australia
- Coal and Oil Company - UAE
- Central Electricity Authority - India
- ASAPP Information Group - India
- SN Aboitiz Power Inc, Philippines
- Central Java Power - Indonesia
- LBH Netherlands Bv - Netherlands
- Mercator Lines Limited - India
- Latin American Coal - Colombia
- Sindya Power Generating Company Private Ltd
- Maheswari Brothers Coal Limited - India
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Ministry of Mines - Canada
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- Australian Coal Association
- Electricity Authority, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Simpson Spence & Young - Indonesia
- Power Finance Corporation Ltd., India
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Interocean Group of Companies - India
- ICICI Bank Limited - India
- Romanian Commodities Exchange
- Thai Mozambique Logistica
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Rio Tinto Coal - Australia
- CNBM International Corporation - China
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- Commonwealth Bank - Australia
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Therma Luzon, Inc, Philippines
- Orica Australia Pty. Ltd.
- Trasteel International SA, Italy
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- Agrawal Coal Company - India
- Marubeni Corporation - India
- Australian Commodity Traders Exchange
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Karaikal Port Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Cigading International Bulk Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Vizag Seaport Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sojitz Corporation - Japan
- Sarangani Energy Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Alfred C Toepfer International GmbH - Germany
- Electricity Generating Authority of Thailand
- Energy Development Corp, Philippines
- Georgia Ports Authority, United States
- Tamil Nadu electricity Board
- PTC India Limited - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Eastern Energy - Thailand
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- IHS Mccloskey Coal Group - USA
- GVK Power & Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Bhatia International Limited - India
- Standard Chartered Bank - UAE
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Kideco Jaya Agung - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Savvy Resources Ltd - HongKong
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Bahari Cakrawala Sebuku - Indonesia
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- London Commodity Brokers - England
- McConnell Dowell - Australia
- GMR Energy Limited - India
- Rashtriya Ispat Nigam Limited - India
- Vedanta Resources Plc - India
- PowerSource Philippines DevCo
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