Opening up of commercial coal mining to 100% FDI unlikely to boost sector

Allowing 100% FDI in commercial coal mining doesn't augur well for the sector at a time when global capital is fleeing coal

The central government's decision to allow up to 100 per cent foreign direct investment for any commercial coal mining project does not mean a ready flow of such money, says a study.

As global capital flees thermal coal, the time is not congenial to attract foreign investment. Leading global investors are moving  towards renewable energy (RE), says the Delhi-based Centre for Financial Accountability.

Their study analysed 54 energy projects in 2018 and says 80 per cent of the total credit of Rs 30,534 crore was parked in RE ones. Only the remaining 20 per cent went to coal-based generation projects. More, primary finance to the latter fell by 93 per cent in value terms compared with 2017.

In 2018, most of the credit for coal-fired generation projects was made available by government-owned bodies or where the government had majority stake. By contrast, 75 per cent of the finance for RE projects came from private banks. 

The global trend is similar. Over 100 globally significant financial institutions have divested from thermal coal. The figure includes 40 per cent of the top 40 global banks and 20 leading global insurers.  

“In this context, it could be challenging to attract foreign investment to a declining sector, when India’s economic growth is (also) slowing and global investors are shying away from the dirtiest fossil fuel,” said Vibhuti Garg, energy economist with the US-based Institute for Energy Economics & Financial Analysis. 

Adding: “The government should channel its resources to a greater offtake of RE. This would require grid strengthening, imp­roved inter-state transmission capacity and, ideally, a stronger price signal to incentivise peaking power supply to reward fast ramping and on-demand peak supply.”

The country’s power sector is grappling with issues across the value chain. The thermal generation sector was exposed to a colossal non-performing asset burden of $144 billion (as of the end of the 2017-18), a deficient transmission network leading to grid congestion and curtailment, and a rising debt pile. Resulting in deteriorating financial health of distribution companies (discoms).

At thermal power plants, average capacity utilisation has stayed below 60 per cent for over two years. Some of the stressed coal-based units are highly leveraged as well, making debt servicing  difficult. More, late payments by loss-accumulating discoms and renegotiation of rates over power purchase agreements have added to the problems for thermal power producers.