Wednesday 26th September 2018

    Commercial coal mining for private sector most ambitious reform since nationalization of coal mining

    The latest approval for opening up of commercial coal mining for private sector is seen as the most ambitious coal sector reform since the nationalism of this sector in 1973. It is also seen as boosting the national economy with large scale generation of employment and operational efficiency for corporates.

    It should be noted the Union Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi approved the methodology for auction of coal mines and blocks for sale of coal under the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957. Read more

    The decision is important as it allows allocation of mines for private use after the Supreme Court cancelled 204 coal mines on grounds of irregularity in September 2014.

    In 2015 the government introduced the Coal Mines (Special Provisions) Bill 2015 to bring transparency and accountability in the allocation of coal mines by way of auction and allotment for the sale of coal.

    A statement issued by government said the new methodology gives highest priority to transparency, ease of doing business and ensures that natural resources are used for national development.

    “The auction will be an ascending forward auction whereby the bid parameter will be the price offer in Rs./tonne which will be paid to the State Government on the actual production of coal. There shall be no restriction on the sale and/or utilization of coal from the coal mine,” the statement noted.

    The government further states, since the entire revenue from the auction of coal mines for sale of coal would accrue to the coal bearing States the methodology shall incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants including tribals. States in Eastern part of the country will be especially benefited.

    Piyush Goyal, minister for coal and railways, said, “The quality of coal would improve with commercial mining and imports would come down. We want India to be self-sufficient in coal. The move aims to improve the ease of doing business in India.”

    Experts believe the reform will bring efficiency into the coal sector by moving from an era of monopoly to competition. It will increase competitiveness and allow the use of best possible technology into the sector. The higher investment will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions. It will also lead to energy security as 70% of India’s electricity is generated from thermal power plants. This reform will ensure assured coal supply, accountable allocation of coal and affordable coal leading to affordable power prices for consumers.

    Anil Agarwal, chairman of Vedanta Group, said that, “Commercial mining is a big opportunity for foreign investors with deep pockets, as these projects will require huge investments. “Since we have invested in one of the largest miners in the world, Anglo American, we would be willing to facilitate their investments in India.” However, he advises that the Indian government should come out of its revenue mindset and focus on productivity that would help the sector.

    Dipesh Dipu, founder and managing director of Hyderabad based Genissi Consultancy on the other hand states, unless the demand for coal improves, the auctions may not generate enough interest. The investments could be further affected by requirements of premium for selling coal over the CIL prices. He questions why would someone like to buy costly coal from a commercial miner when it is likely to be made available at lower price by Coal India? The objective of finding a competitor to Coal India can be served only if the auctions are for bigger blocks of over 24-25 million tonne per annum capacities, and then too a lot would depend on demand.

    Kameswara Rao, leader, energy, utilities & mining at PwC India said the competition in domestic coal supply market will drive merchant power prices down which will lead to higher benefits for power utilities and the manufacturing industries due to lower energy costs. However, he believes the scope for use of domestic coal in imported coal based power plants will be limited. But it’s possible that commercial coal suppliers will come up with improved quality of coal that can be used in greater proportion for blending purpose.

    Experts agreed that the non-regulated sectors, such as cement and steel that have a greater dependence on imports and e-auctions will bid more aggressively for these blocks to save on price risk and exchange rate risk. It is important that the government bid out larger more viable blocks unlike in the previous captive block auctions for the reforms to bear fruit.

    Anjani Agrawal, partner at consultancy firm EY, said, “Success will depend on the size of the blocks identified, flexibility of sales, distribution and pricing, and consistency of regulations over a long period.”

    - TradeBriefs Bureau