India’s new FDI policy may not be enough for private coal mining to take off, say experts

Investment in coal has been declining as both global mining corporations and international banks try to address the climate crisis. Rio Tinto has exited the thermal coal business—that is, coal used in power plants. Both Anglo American and BHP are said to have begun the process of divesting their thermal coal assets. Earlier this year, Switzerland-based miner Glencore, the world’s biggest exporter of coal, announced capping production roughly at the current levels of 150 million tonnes due to investor pressure.

Any foreign miners that hope to enter India will find it more difficult to raise investment. Multinational lenders like Deutsche Bank, DBS, Standard Chartered, JP Morgan Chase, and HSBC, will no longer fund new coal-mining projects. Mining corporations in Asia are already feeling the pain as funding options dry up.

To add to the woes, workers at India’s state-owned coal mining company are upset about the government’s decision to clear 100% foreign direct investment in the industry. Five trade unions, representing the workers of the state-owned miner Coal India, have even called for a strike on 24 September against the move that will allow global players like Glencore, BHP, and Anglo American to enter India.

Coal is the most abundant fossil fuel in India. The country’s reserves are the fifth largest in the world. Under existing policy, it could auction blocks of coal-bearing land to private firms, including foreign players, which owned specific projects such as power stations or steel factories where coal is needed as fuel. In any case, no foreign corporation is known to be operating any captive mine in India.

In the meantime, how prime minister Modi’s administration implements its policy decision would also be key. Though it had approved commercial mining of coal by domestic companies over a year ago, the government is yet to auction any coal blocks.

Apart from global financial pressures, regulatory hurdles and a high ash content of Indian coal will also likely hold back foreign investment. The new announcement is “too little, too late,” said a research fellow at the Council on Energy, Environment, and Water, a non-profit based in New Delhi.

The industry also faces high uncertainty. In 2014, the supreme court of India cancelled over 200 coal block allocations while investigating charges of high-level corruption. Foreign investors are unlikely to ignore these risks, said an analyst at CARE Ratings. Coal prices in India are also regulated, and the base rate (not including freight charges and coal cess) has remained flat since 2012. The private sector does not have the flexibility to price it as per the market demand.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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