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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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Saturday, 06 April 19
SUPRAMAX: IT WAS A POOR WEEK OVERALL FOR THE BALTIC SUPRAMAX INDEX, WHICH LOST GROUND - BALTIC BRIEFING
Capesize
The Capesize market over the past week looked to have found a floor on Tuesday with the BCI 5TC at $3460 before firming into the rest ...
Thursday, 04 April 19
OVERSUPPLY STILL MAJOR CHALLENGE WARNS ICS
Speaking in Istanbul, Simon Bennett, Deputy Secretary General of the International Chamber of Shipping (ICS) warned that avoiding overcapacity and ...
Thursday, 04 April 19
GLENCORE, TOHOKU ELECTRIC SET COAL CONTRACT PRICE AT $94.75/T - SOURCE, REUTERS REPORTED
Global miner Glencore and Japan’s Tohoku Electric Power agreed on a price of $94.75 per tonne for supplies of thermal coal from Australia for ...
Monday, 01 April 19
FORCE MAJEURE SUCCESS NOT A SEA CHANGE - BALTIC EXCHANGE
KNOWLEDGE TO ELEVATE
It is difficult to successfully argue that contractual performance has been prevented or delayed by force majeure. This i ...
Monday, 01 April 19
AUSTRALIAN COAL AT RISK FROM CHINA MOVE, WARNS GOVERNMENT REPORT - SYDNEY MORNING HERALD
A new government report warns China’s restrictions on coal imports is the number one risk for Australian coal this year and could lead to a s ...
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- PTC India Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bulk Trading Sa - Switzerland
- Baramulti Group, Indonesia
- Indian Energy Exchange, India
- Mercuria Energy - Indonesia
- Tamil Nadu electricity Board
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- Larsen & Toubro Limited - India
- Intertek Mineral Services - Indonesia
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Meralco Power Generation, Philippines
- Electricity Generating Authority of Thailand
- Xindia Steels Limited - India
- Central Electricity Authority - India
- VISA Power Limited - India
- India Bulls Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Gujarat Mineral Development Corp Ltd - India
- Banpu Public Company Limited - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- Dalmia Cement Bharat India
- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- Thiess Contractors Indonesia
- Semirara Mining Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- White Energy Company Limited
- Siam City Cement PLC, Thailand
- IEA Clean Coal Centre - UK
- Bahari Cakrawala Sebuku - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Malabar Cements Ltd - India
- CIMB Investment Bank - Malaysia
- Jindal Steel & Power Ltd - India
- Minerals Council of Australia
- Orica Mining Services - Indonesia
- Anglo American - United Kingdom
- New Zealand Coal & Carbon
- Australian Coal Association
- Indika Energy - Indonesia
- Coalindo Energy - Indonesia
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Singapore Mercantile Exchange
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- Agrawal Coal Company - India
- SN Aboitiz Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Sree Jayajothi Cements Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Carbofer General Trading SA - India
- Miang Besar Coal Terminal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Grasim Industreis Ltd - India
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Cement Manufacturers Association - India
- Bhatia International Limited - India
- Bharathi Cement Corporation - India
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- PNOC Exploration Corporation - Philippines
- Lanco Infratech Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sinarmas Energy and Mining - Indonesia
- Bhushan Steel Limited - India
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- Deloitte Consulting - India
- Globalindo Alam Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Siam City Cement - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The State Trading Corporation of India Ltd
- Parliament of New Zealand
- Mercator Lines Limited - India
- Electricity Authority, New Zealand
- Iligan Light & Power Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Attock Cement Pakistan Limited
- Gujarat Sidhee Cement - India
- Global Business Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Orica Australia Pty. Ltd.
- Aboitiz Power Corporation - Philippines
- Power Finance Corporation Ltd., India
- Borneo Indobara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Neyveli Lignite Corporation Ltd, - India
- GN Power Mariveles Coal Plant, Philippines
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bukit Baiduri Energy - Indonesia
- McConnell Dowell - Australia
- Romanian Commodities Exchange
- Sical Logistics Limited - India
- Karaikal Port Pvt Ltd - India
- Planning Commission, India
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Posco Energy - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- AsiaOL BioFuels Corp., Philippines
- Alfred C Toepfer International GmbH - Germany
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Metalloyd Limited - United Kingdom
- Manunggal Multi Energi - Indonesia
- Chamber of Mines of South Africa
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- Merrill Lynch Commodities Europe
- Bhoruka Overseas - Indonesia
- Binh Thuan Hamico - Vietnam
- Rio Tinto Coal - Australia
- Uttam Galva Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- London Commodity Brokers - England
- Ministry of Mines - Canada
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Renaissance Capital - South Africa
- Energy Link Ltd, New Zealand
- GMR Energy Limited - India
- Meenaskhi Energy Private Limited - India
- Port Waratah Coal Services - Australia
- Riau Bara Harum - Indonesia
- Essar Steel Hazira Ltd - India
- Indo Tambangraya Megah - Indonesia
- The Treasury - Australian Government
- Maharashtra Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maheswari Brothers Coal Limited - India
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- Eastern Coal Council - USA
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- Georgia Ports Authority, United States
- Sojitz Corporation - Japan
- Sakthi Sugars Limited - India
- Jorong Barutama Greston.PT - Indonesia
- ICICI Bank Limited - India
- Price Waterhouse Coopers - Russia
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Marubeni Corporation - India
- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- Chettinad Cement Corporation Ltd - India
- Madhucon Powers Ltd - India
- Therma Luzon, Inc, Philippines
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- Pendopo Energi Batubara - Indonesia
- Standard Chartered Bank - UAE
- Indonesian Coal Mining Association
- Heidelberg Cement - Germany
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Global Green Power PLC Corporation, Philippines
- The University of Queensland
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