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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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Tuesday, 07 May 19
UNDOUBTEDLY A VERY TROUBLED YEAR FOR THE DRY BULK MARKET, SAYS ALLIED SHIPPING
Undoubtedly a very troubled year for the dry bulk market says Allied Shipping in its latest weekly report.
Thomas Chasapis, Re ...
Saturday, 04 May 19
HOW THE 'FAIR VALUE' OF COAL ASSETS IS AFFECTED BY COMMODITY CYCLES - CRU
As with any commodity, valuing coal assets can be tricky due to the cyclical nature of the market. In this insight, CRU discusses how commodity cyc ...
Friday, 03 May 19
SUPRAMAX: WITH WIDESPREAD HOLIDAYS DURING THE WEEK, THE MARKET LACKED IMPETUS - BALTIC BRIEFING
Capesize
The market last week was a tale of two halves, with substantial volatility. Beginning the week on a positive note the C5 West Australi ...
Friday, 03 May 19
COAL INDIA APRIL OUTPUT RISES 1% TO 45.29 MILLION TONNE - PTI
Coal India Ltd (CIL) Wednesday said its coal production in April 2019 rose by 1 per cent to 45.29 million tonne as compared with 44.86 million tonn ...
Sunday, 28 April 19
SUPRAMAX: A 54,000DWT VESSEL OPEN GRESIK FIXED VIA AUSTRALIA, REDELIVERY CHINA, IN THE MID $12,000S - BALTIC BRIEFING
Capesize
Following the holidays, activity increased in both the Pacific and Atlantic Basins. The 5TC average rallied, closing at $8,596, up $1, ...
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- Maharashtra Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- Larsen & Toubro Limited - India
- Gujarat Electricity Regulatory Commission - India
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- Goldman Sachs - Singapore
- Chamber of Mines of South Africa
- Miang Besar Coal Terminal - Indonesia
- Wood Mackenzie - Singapore
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Binh Thuan Hamico - Vietnam
- Holcim Trading Pte Ltd - Singapore
- Independent Power Producers Association of India
- Pendopo Energi Batubara - Indonesia
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Thiess Contractors Indonesia
- Star Paper Mills Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indonesian Coal Mining Association
- Sinarmas Energy and Mining - Indonesia
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Indogreen Group - Indonesia
- Xindia Steels Limited - India
- Coal and Oil Company - UAE
- Iligan Light & Power Inc, Philippines
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- Videocon Industries ltd - India
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Coalindo Energy - Indonesia
- Riau Bara Harum - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Economic Council, Georgia
- Bhatia International Limited - India
- Petron Corporation, Philippines
- Power Finance Corporation Ltd., India
- Sakthi Sugars Limited - India
- Rio Tinto Coal - Australia
- Price Waterhouse Coopers - Russia
- Therma Luzon, Inc, Philippines
- Agrawal Coal Company - India
- Altura Mining Limited, Indonesia
- SN Aboitiz Power Inc, Philippines
- Medco Energi Mining Internasional
- OPG Power Generation Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Ministry of Finance - Indonesia
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Deloitte Consulting - India
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- Malabar Cements Ltd - India
- Central Electricity Authority - India
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Alfred C Toepfer International GmbH - Germany
- India Bulls Power Limited - India
- Parry Sugars Refinery, India
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- The Treasury - Australian Government
- Eastern Coal Council - USA
- The State Trading Corporation of India Ltd
- Lanco Infratech Ltd - India
- Banpu Public Company Limited - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- MS Steel International - UAE
- Savvy Resources Ltd - HongKong
- Aditya Birla Group - India
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- ASAPP Information Group - India
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Energy Link Ltd, New Zealand
- Africa Commodities Group - South Africa
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- The University of Queensland
- Oldendorff Carriers - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- ICICI Bank Limited - India
- Kaltim Prima Coal - Indonesia
- Attock Cement Pakistan Limited
- PNOC Exploration Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Heidelberg Cement - Germany
- Electricity Authority, New Zealand
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mintek Dendrill Indonesia
- Makarim & Taira - Indonesia
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- Cement Manufacturers Association - India
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Global Green Power PLC Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- LBH Netherlands Bv - Netherlands
- SMG Consultants - Indonesia
- Kideco Jaya Agung - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- Orica Australia Pty. Ltd.
- Borneo Indobara - Indonesia
- Samtan Co., Ltd - South Korea
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- Sarangani Energy Corporation, Philippines
- Gujarat Sidhee Cement - India
- Interocean Group of Companies - India
- Global Business Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Intertek Mineral Services - Indonesia
- Sindya Power Generating Company Private Ltd
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Central Java Power - Indonesia
- Siam City Cement PLC, Thailand
- TeaM Sual Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Romanian Commodities Exchange
- White Energy Company Limited
- Petrochimia International Co. Ltd.- Taiwan
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- Global Coal Blending Company Limited - Australia
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Australian Coal Association
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Meenaskhi Energy Private Limited - India
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Mercuria Energy - Indonesia
- Mjunction Services Limited - India
- New Zealand Coal & Carbon
- Formosa Plastics Group - Taiwan
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Madhucon Powers Ltd - India
- Vizag Seaport Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Sojitz Corporation - Japan
- Australian Commodity Traders Exchange
- Sree Jayajothi Cements Limited - India
- IHS Mccloskey Coal Group - USA
- Krishnapatnam Port Company Ltd. - India
- Globalindo Alam Lestari - Indonesia
- Mercator Lines Limited - India
- Bulk Trading Sa - Switzerland
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Renaissance Capital - South Africa
- London Commodity Brokers - England
- Orica Mining Services - Indonesia
- Georgia Ports Authority, United States
- Bank of Tokyo Mitsubishi UFJ Ltd
- Salva Resources Pvt Ltd - India
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