Insight - How to succeed in India’s METS sector

In December 2020, India’s Government released its new Australia Economic Strategy. This identified Australian METS as a valuable partner in the ongoing liberalisation of India’s mining sector. With 1,500 mines in operation in India, new developments are creating fresh opportunities for Australian companies:

  • New mine operating models designed to encourage private-sector involvement
  • Auctions of state-owned coal mines
  • New regulations that aim to increase overseas investment.

This insight gives an overview of some of the key opportunities and challenges facing prospective METS suppliers in India. It suggests ways to approach state-owned mining enterprises and identifies opportunities for Australian METS in skills training and development.

To find out more, please contact Varun Kukreti, Austrade Business Development Manager, Kolkata.

Private enterprise gains ground in Indian mining

India offers significant potential for Australian METS with its fast-growing demand for energy and resources. The Indian Government wants to attract overseas expertise and capital to help develop India’s abundant reserves of natural resources. India’s goal is to improve self-sufficiency in minerals and resources, especially coal.

A huge program of modernisation is underway. A largely state-owned mining industry is progressively opening to private enterprise – including through mine auctions. The government is also easing many restrictions and revising policies to encourage private companies into India’s mining industry.

Private activity is now driving increased partnership with METS providers. There is widespread confidence that METS companies – including overseas METS – can help transform productivity, safety and profitability.

Major new developments create new prospects

Australian METS companies should take note of three new initiatives that will trigger increased demand for their products and services.

  1. New mine operating models. The Government’s new Mine Development and Operation model allows private companies to develop and operate a mine. It also allows a private company to supply the mineral output to the owner – including government customers – for a fixed fee calculated per tonne. This will encourage mine owners to reconsider the scope for new technologies in mine operations.
  2. Coal mine auctions. The Government of India began to auction its coal mine assets in November 2020. In total, 19 were sold, representing a 50% success rate for the first tranche. The new privatised mines have an estimated revenue of A$1.2 billion, and employ 69,000 people when operating at full capacity.
  3. Policy reform to increase foreign direct investment (FDI). In 2020, the Government amended the Mines and Minerals Development and Regulation act (MMDR), with the new Minerals Laws (Amendment) Act. The Act aims to open the mining sector to greater commercial activity. It will do this in two ways: with new measures to make it easier to do business; by allowing FDI stakes of up to 100% for coal and lignite mines.

Procurement in the public and private sector

Increased private sector participation will trigger a fundamental change in how METS is procured in India.

Government companies can only purchase products and services via tenders. This tends to slow procurement. In the mining sector, it has also led to procurement becoming ‘bureaucratic.’

In contrast, India’s private sector can purchase METS services however it likes. As private enterprise takes a greater share of mining activity this is streamlining METS procurement.

In turn, wider and faster METS procurement is leading to an increased recognition of the value that Australian METS can deliver.

Australian METS providers have already proved successful in India, including Geoscience Australia, Maptek, Real Time Instruments, and Trakblaze.

Training and skilling opportunities

The mining industry is open to executive and workforce training. Opportunities are likely to increase rapidly as private owners endeavour to reach globally accepted safety standards. This trend creates a major opportunity for Australian METS.

  • In-country training must meet local standards. This includes delivering courses in the regional language and ensuring a minimum number of participants from a particular local community.
  • State-owned mining enterprises will release Request for Proposals (RFP) to which training providers can reply.
  • A private mining company will be open to direct approach, or may advertise opportunities.

Austrade recommends that Australian training providers form an alliance with Indian training providers to present joint responses to these requests. Austrade has prepared an Indian transnational education opportunities report. This addresses various market-entry strategies that Australian training providers can adopt to enter the Indian market.

Austrade India also facilitates connections between Australian training providers and Indian partners and organisations.

Approvals for new products

A mine developer and operator needs to obtain a safety certificate from the Directorate General of Mining Safety (DGMS) for any new product to be used in mines. This can take from six months to four years depending on the equipment’s value and complexity.

Working with state-owned enterprises

The majority of prominent mining companies in India are still state-owned enterprises. This applies particularly to coal-mining companies. These government entities have fixed purchase rules, and the number of approvals required increases with the value of the product or service that is being bought.

Purchases are predominantly made through tenders, which require technical and financial bids.

Typically, committees with technical, finance, and research and development (R&D) expertise will meet bi-monthly or quarterly to determine procurement specifications and progress.

This often means it can take a long time for new projects and new equipment or services to be approved. This adds to the risk of selling into the public sector.

Working with private sector companies

It is relatively easier to work with private companies. However, approvals for new equipment still require certification from DGMS. Suppliers must factor in import duties into bids, as India is a highly price-sensitive market. This means some value-added products can be difficult to sell.

A joint venture with a reliable private distributor is an effective way to mitigate risk, understand market processes, and negotiate delivery times and price. A distributor can also provide ongoing market development support including after-sales service.

Business culture

Understanding how business culture differs in India will help Australian METS organisations to manage risk.

  1. Delays. It is normal to expect some delay while negotiating with government organisations or state-owned agencies or companies. This is because final agreement requires the approval of multiple stakeholders. Also, it is common for successful bidders to receive requests for changes in price or contract terms after the final agreement has been reached
  2. Almost 81% of India’s workforce work in the ‘informal’ sector. They are untaxed and many workers are employed in mine sites without proper contracts. This adds to the complexities of mine-site employment and operational risk management.
  3. There are 22 official languages in India and innumerable dialects. Culture varies enormously from one part of India to another. Local representation is essential to bridge communication gaps, speed up the sales process and provide Indian customers with in-market support.
  4. Dispute resolution. There are a reputed 40 million cases pending in the Indian Judicial system. Arbitration is a preferred dispute resolution mechanism, but there is no supervising arbitration institution. International arbitration alternatives have emerged, such as the Singapore International Arbitration Centre, which has a marketing office in Mumbai.

Contact Us

Austrade has offices in six major hubs: Delhi, Mumbai, Chennai, Kolkata, Hyderabad and Bangalore.

We can assist Australian METS providers with:

  • market entry strategies
  • introductions to potential partners
  • business advice.

For more information, please email Varun Kukreti, Business Development Manager, Kolkata.