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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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Friday, 12 April 19
U.S : MORE THAN 7 GW OF COAL-FIRED GENERATION IS SCHEDULED TO RETIRE BY THE END OF 2020 - EIA
EIA estimates that U.S. coal production decreased by 19 million short tons (MMst) (2%) in 2018, totaling 756 MMst.
EIA also expects ...
Friday, 12 April 19
GLENCORE WINS $520 MILLION DEAL TO SELL COAL TO MEXICO - REUTERS
Global trader Glencore has won contracts worth around $520 million to supply 4.94 million tonnes of coal to Mexico, state-run power utility the Fed ...
Thursday, 11 April 19
AUSTRALIAN COAL IN THE FRONTLINE OF CHINA'S SUPPLY GLUT - AUSTRALIAN FINANCIAL REVIEW
Australian coal will be hardest hit as China cuts foreign imports of its key energy source to tackle oversupply, and implements policies favouring ...
Wednesday, 10 April 19
COALTRANS ASIA - TAKE PART IN THE LARGEST COAL EVENT IN THE WORLD!
Take part in the largest coal event in the world!
Coaltrans Asia is back this June bringing together the entire international coal s ...
Wednesday, 10 April 19
KOSPO INVITED BIDS FOR 160K MT OF MIN. 3700 NCV COAL FOR JUNE LOADING
COALspot.com: South Korea state-owned utility Korea Southern Power Co. Ltd (KOSPO) issued a tender for 160,000 MT of min. 3,800 Kcal/kg ~max.4,100 ...
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- Attock Cement Pakistan Limited
- Heidelberg Cement - Germany
- Holcim Trading Pte Ltd - Singapore
- Timah Investasi Mineral - Indoneisa
- Siam City Cement PLC, Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meenaskhi Energy Private Limited - India
- Vizag Seaport Private Limited - India
- The University of Queensland
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Formosa Plastics Group - Taiwan
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Africa Commodities Group - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Star Paper Mills Limited - India
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- Sree Jayajothi Cements Limited - India
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- McConnell Dowell - Australia
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Indika Energy - Indonesia
- Samtan Co., Ltd - South Korea
- SMC Global Power, Philippines
- Wood Mackenzie - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Coal and Oil Company - UAE
- Romanian Commodities Exchange
- Merrill Lynch Commodities Europe
- Power Finance Corporation Ltd., India
- International Coal Ventures Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Jaiprakash Power Ventures ltd
- Directorate Of Revenue Intelligence - India
- Bharathi Cement Corporation - India
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Madhucon Powers Ltd - India
- Thiess Contractors Indonesia
- Petron Corporation, Philippines
- Makarim & Taira - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- OPG Power Generation Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Latin American Coal - Colombia
- MS Steel International - UAE
- Marubeni Corporation - India
- San Jose City I Power Corp, Philippines
- Goldman Sachs - Singapore
- SMG Consultants - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- White Energy Company Limited
- Therma Luzon, Inc, Philippines
- Banpu Public Company Limited - Thailand
- South Luzon Thermal Energy Corporation
- Carbofer General Trading SA - India
- Kapuas Tunggal Persada - Indonesia
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Pendopo Energi Batubara - Indonesia
- Lanco Infratech Ltd - India
- Commonwealth Bank - Australia
- Australian Commodity Traders Exchange
- GMR Energy Limited - India
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- Bhushan Steel Limited - India
- Globalindo Alam Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- PTC India Limited - India
- PNOC Exploration Corporation - Philippines
- Malabar Cements Ltd - India
- Singapore Mercantile Exchange
- Global Coal Blending Company Limited - Australia
- Kaltim Prima Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Grasim Industreis Ltd - India
- SN Aboitiz Power Inc, Philippines
- Riau Bara Harum - Indonesia
- Energy Link Ltd, New Zealand
- Sical Logistics Limited - India
- Sinarmas Energy and Mining - Indonesia
- Altura Mining Limited, Indonesia
- Minerals Council of Australia
- Ceylon Electricity Board - Sri Lanka
- Parliament of New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- The Treasury - Australian Government
- Larsen & Toubro Limited - India
- Price Waterhouse Coopers - Russia
- Billiton Holdings Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- Kobexindo Tractors - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- Maheswari Brothers Coal Limited - India
- Cement Manufacturers Association - India
- Eastern Energy - Thailand
- CIMB Investment Bank - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Deloitte Consulting - India
- Ministry of Mines - Canada
- Offshore Bulk Terminal Pte Ltd, Singapore
- Independent Power Producers Association of India
- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- Baramulti Group, Indonesia
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- Agrawal Coal Company - India
- Medco Energi Mining Internasional
- Xindia Steels Limited - India
- Mercuria Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Generating Authority of Thailand
- Global Business Power Corporation, Philippines
- Rio Tinto Coal - Australia
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sakthi Sugars Limited - India
- Semirara Mining and Power Corporation, Philippines
- Videocon Industries ltd - India
- India Bulls Power Limited - India
- Savvy Resources Ltd - HongKong
- Kumho Petrochemical, South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Aboitiz Power Corporation - Philippines
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Tata Chemicals Ltd - India
- Coastal Gujarat Power Limited - India
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Bhatia International Limited - India
- Bukit Makmur.PT - Indonesia
- Orica Mining Services - Indonesia
- Trasteel International SA, Italy
- Wilmar Investment Holdings
- CNBM International Corporation - China
- Meralco Power Generation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Renaissance Capital - South Africa
- Coalindo Energy - Indonesia
- Indonesian Coal Mining Association
- ICICI Bank Limited - India
- GN Power Mariveles Coal Plant, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining Corp, Philippines
- Anglo American - United Kingdom
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Mjunction Services Limited - India
- Planning Commission, India
- Sojitz Corporation - Japan
- London Commodity Brokers - England
- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Antam Resourcindo - Indonesia
- Edison Trading Spa - Italy
- Ministry of Finance - Indonesia
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Central Electricity Authority - India
- Georgia Ports Authority, United States
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Miang Besar Coal Terminal - Indonesia
- Indian Energy Exchange, India
- Neyveli Lignite Corporation Ltd, - India
- ASAPP Information Group - India
- Indo Tambangraya Megah - Indonesia
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