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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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Sunday, 23 June 19
SUPRAMAX: A 56,000-DWT WAS FIXED FROM INDONESIA TO VIETNAM AT $10,000 - BALTIC BRIEFING
Capesize
The story over the past week has been largely Atlantic dominated as the basin’s uniquely volatile characteristics came into play ...
Saturday, 22 June 19
OPEC'S BATTLE FOR CONTROL OF THE OIL MARKET - WOOD MACKENZIE
Oil supply is confounding expectations. We have just raised our forecasts for non-OPEC production, the latest in a series of incremental increases. ...
Friday, 21 June 19
INDONESIA'S BAYAN RESOURCES SIGNED A COAL SUPPLY AGREEMENT WITH THE BANGLADESH BCPCL TO SUPPLY 23 MILLION TONS OF COAL FOR 10 YEARS
On Monday, 17th June 2019, PT. Bayan Resources signed a Coal supply Agreement with the Bangladesh- China Power Company (Pvt.) Limited. BCPCL is a j ...
Thursday, 20 June 19
BUMI RESOURCES EXPECTS TO SELL 42 MILLION TONS OF COAL IN FIRST HALF - JAKARTA POST
PT Bumi Resources (BUMI), Indonesia's largest thermal coal miner, expects to close the first half of this year with coal sales of 42 million to ...
Tuesday, 18 June 19
TANKER SHIPPING: WHILE WE WAIT FOR 2020 TO KICK IN, IT'S ALL ABOUT POLITICS - BIMCO
Demand drivers and freight rates
Iran, Libya and Venezuela face export limitations because of sanctions and internal political troubles. At the s ...
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- White Energy Company Limited
- Straits Asia Resources Limited - Singapore
- Maheswari Brothers Coal Limited - India
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Oldendorff Carriers - Singapore
- Salva Resources Pvt Ltd - India
- Africa Commodities Group - South Africa
- Billiton Holdings Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- Orica Mining Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Miang Besar Coal Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- India Bulls Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Central Electricity Authority - India
- Chettinad Cement Corporation Ltd - India
- Ind-Barath Power Infra Limited - India
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Wilmar Investment Holdings
- Kideco Jaya Agung - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- CIMB Investment Bank - Malaysia
- PowerSource Philippines DevCo
- Pipit Mutiara Jaya. PT, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
- IHS Mccloskey Coal Group - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- Aditya Birla Group - India
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Australian Commodity Traders Exchange
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- PNOC Exploration Corporation - Philippines
- Malabar Cements Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- MS Steel International - UAE
- Wood Mackenzie - Singapore
- Globalindo Alam Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Formosa Plastics Group - Taiwan
- The Treasury - Australian Government
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Vizag Seaport Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Indika Energy - Indonesia
- Thiess Contractors Indonesia
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- New Zealand Coal & Carbon
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- SMG Consultants - Indonesia
- Singapore Mercantile Exchange
- Parliament of New Zealand
- Mjunction Services Limited - India
- Anglo American - United Kingdom
- Banpu Public Company Limited - Thailand
- Aboitiz Power Corporation - Philippines
- McConnell Dowell - Australia
- Jindal Steel & Power Ltd - India
- Ministry of Transport, Egypt
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rashtriya Ispat Nigam Limited - India
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Riau Bara Harum - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Goldman Sachs - Singapore
- TeaM Sual Corporation - Philippines
- Eastern Energy - Thailand
- Kepco SPC Power Corporation, Philippines
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- Deloitte Consulting - India
- Electricity Generating Authority of Thailand
- Eastern Coal Council - USA
- Petrochimia International Co. Ltd.- Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- ASAPP Information Group - India
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Kaltim Prima Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Bhushan Steel Limited - India
- Siam City Cement - Thailand
- Commonwealth Bank - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Romanian Commodities Exchange
- Bhatia International Limited - India
- Power Finance Corporation Ltd., India
- Georgia Ports Authority, United States
- Heidelberg Cement - Germany
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Chamber of Mines of South Africa
- Star Paper Mills Limited - India
- Bukit Makmur.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Leighton Contractors Pty Ltd - Australia
- Ministry of Mines - Canada
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CNBM International Corporation - China
- Medco Energi Mining Internasional
- Carbofer General Trading SA - India
- Barasentosa Lestari - Indonesia
- Coalindo Energy - Indonesia
- Kumho Petrochemical, South Korea
- Manunggal Multi Energi - Indonesia
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- Petron Corporation, Philippines
- PTC India Limited - India
- Tata Chemicals Ltd - India
- The University of Queensland
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- GMR Energy Limited - India
- Videocon Industries ltd - India
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Parry Sugars Refinery, India
- Vedanta Resources Plc - India
- Baramulti Group, Indonesia
- Krishnapatnam Port Company Ltd. - India
- Australian Coal Association
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- Edison Trading Spa - Italy
- Renaissance Capital - South Africa
- Directorate Of Revenue Intelligence - India
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Xindia Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Metalloyd Limited - United Kingdom
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Mercuria Energy - Indonesia
- Ministry of Finance - Indonesia
- Indogreen Group - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- Indian Energy Exchange, India
- Vijayanagar Sugar Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Bank of Tokyo Mitsubishi UFJ Ltd
- Marubeni Corporation - India
- Cement Manufacturers Association - India
- Alfred C Toepfer International GmbH - Germany
- Toyota Tsusho Corporation, Japan
- Maharashtra Electricity Regulatory Commission - India
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Gujarat Sidhee Cement - India
- Timah Investasi Mineral - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Therma Luzon, Inc, Philippines
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Meralco Power Generation, Philippines
- The State Trading Corporation of India Ltd
- Coal and Oil Company - UAE
- Uttam Galva Steels Limited - India
- Global Business Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- GVK Power & Infra Limited - India
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Gujarat Mineral Development Corp Ltd - India
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
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