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