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