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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, 24 April 19
PANAMAX: IN THE EAST, THE MARKET MOVED SIDE-WAYS, WITH FEWER COAL CARGOES FROM INDONESIA PUTTING PRESSURE ON RATES - INTERMODAL
Sentiment in the Dry Bulk market slowly but steadily kept improving last week as Capesize rates remained in recovery mode and Panamax earnings also ...
Wednesday, 24 April 19
SHIPPING MARKET INSIGHT - IS THIS A BANKERS' MARKET? - INTERMODAL
Over the last 10 years, many of the traditional and top lending banks have made the decision to either downsize their portfolios or even exit shipp ...
Monday, 22 April 19
COAL INDIA TO ASK POWER PLANTS TO CUT COAL IMPORTS - DNA
Co to encourage import substitution with domestic supplies at power plants
Surge in coal imports has now forced Coal India Ltd (CIL) ...
Thursday, 18 April 19
BIMCO SEES HARD TIMES AHEAD FOR CAPESIZES
China’s increased use of scrap metal for its production of crude steel is fundamentally critical to the dry bulk shipping industry. Mostly Ca ...
Wednesday, 17 April 19
ONCE AGAIN WE FACED WITH THE SITUATION OF THE DRY BALTIC INDEX BEING BELOW 1,000 POINTS - INTERMODAL
Once again we are faced with the situation of the Dry Baltic Index being below 1,000 points. In a market where the feeling of insecurity is almost ...
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- Mercator Lines Limited - India
- Goldman Sachs - Singapore
- Billiton Holdings Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Indian Oil Corporation Limited
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- European Bulk Services B.V. - Netherlands
- Sarangani Energy Corporation, Philippines
- MS Steel International - UAE
- Kepco SPC Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Intertek Mineral Services - Indonesia
- Latin American Coal - Colombia
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Bharathi Cement Corporation - India
- Sojitz Corporation - Japan
- CNBM International Corporation - China
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Thiess Contractors Indonesia
- Romanian Commodities Exchange
- Central Java Power - Indonesia
- IEA Clean Coal Centre - UK
- Banpu Public Company Limited - Thailand
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Semirara Mining and Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- GAC Shipping (India) Pvt Ltd
- Indo Tambangraya Megah - Indonesia
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Kideco Jaya Agung - Indonesia
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Sidhee Cement - India
- GVK Power & Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Malabar Cements Ltd - India
- India Bulls Power Limited - India
- Kaltim Prima Coal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Renaissance Capital - South Africa
- Karaikal Port Pvt Ltd - India
- Chamber of Mines of South Africa
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Altura Mining Limited, Indonesia
- Economic Council, Georgia
- Neyveli Lignite Corporation Ltd, - India
- Aboitiz Power Corporation - Philippines
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
- Independent Power Producers Association of India
- Bhatia International Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Orica Mining Services - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Central Electricity Authority - India
- Sakthi Sugars Limited - India
- Bayan Resources Tbk. - Indonesia
- Bhoruka Overseas - Indonesia
- Miang Besar Coal Terminal - Indonesia
- London Commodity Brokers - England
- Agrawal Coal Company - India
- Sindya Power Generating Company Private Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Baramulti Group, Indonesia
- Formosa Plastics Group - Taiwan
- LBH Netherlands Bv - Netherlands
- Mintek Dendrill Indonesia
- ICICI Bank Limited - India
- Wilmar Investment Holdings
- ASAPP Information Group - India
- Global Coal Blending Company Limited - Australia
- Power Finance Corporation Ltd., India
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Essar Steel Hazira Ltd - India
- Planning Commission, India
- SMG Consultants - Indonesia
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Sical Logistics Limited - India
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- International Coal Ventures Pvt Ltd - India
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- Edison Trading Spa - Italy
- Indogreen Group - Indonesia
- Marubeni Corporation - India
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Siam City Cement PLC, Thailand
- PetroVietnam Power Coal Import and Supply Company
- Parliament of New Zealand
- Vedanta Resources Plc - India
- Coastal Gujarat Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Coalindo Energy - Indonesia
- Carbofer General Trading SA - India
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Posco Energy - South Korea
- Videocon Industries ltd - India
- Jaiprakash Power Ventures ltd
- Siam City Cement - Thailand
- Bukit Makmur.PT - Indonesia
- Larsen & Toubro Limited - India
- AsiaOL BioFuels Corp., Philippines
- Merrill Lynch Commodities Europe
- Tamil Nadu electricity Board
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Therma Luzon, Inc, Philippines
- Tata Chemicals Ltd - India
- Minerals Council of Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- South Luzon Thermal Energy Corporation
- Directorate General of MIneral and Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Deloitte Consulting - India
- Rio Tinto Coal - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Electricity Authority, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Dalmia Cement Bharat India
- White Energy Company Limited
- Aditya Birla Group - India
- Ceylon Electricity Board - Sri Lanka
- Electricity Generating Authority of Thailand
- Australian Coal Association
- Uttam Galva Steels Limited - India
- Sree Jayajothi Cements Limited - India
- SN Aboitiz Power Inc, Philippines
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Trasteel International SA, Italy
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- Parry Sugars Refinery, India
- Chettinad Cement Corporation Ltd - India
- Energy Development Corp, Philippines
- PowerSource Philippines DevCo
- Oldendorff Carriers - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rashtriya Ispat Nigam Limited - India
- Coal and Oil Company - UAE
- Antam Resourcindo - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Anglo American - United Kingdom
- The University of Queensland
- Vizag Seaport Private Limited - India
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- GMR Energy Limited - India
- Mjunction Services Limited - India
- Mercuria Energy - Indonesia
- Africa Commodities Group - South Africa
- Salva Resources Pvt Ltd - India
- Commonwealth Bank - Australia
- Bhushan Steel Limited - India
- Standard Chartered Bank - UAE
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Mines - Canada
- Gujarat Mineral Development Corp Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- Barasentosa Lestari - Indonesia
- Bangladesh Power Developement Board
- Meenaskhi Energy Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Wood Mackenzie - Singapore
- Kumho Petrochemical, South Korea
- Xindia Steels Limited - India
- Alfred C Toepfer International GmbH - Germany
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