New Delhi: After a wait of almost a year, the government may finally throw open doors of the regulated coal sector to commercial mining by private players in the last quarter of this financial year.
Top sources in the government told Financial Chronicle that three to five large mines would be ready for auction to stand-alone mining entities by year-end. Both public and private sector companies would be permitted to bid, they added.
The production potential of these blocks could be 20 million tonnes (mt) per annum, which is large considering that the biggest mine auctioned so far has an annual production potential of 6 mt only. This could fetch between Rs 5,000-Rs 6,000 crore to state governments.
At a function in Kolkata, SK Shahi, a joint secretary in the ministry of coal, confirmed that the government was considering a proposal to allow players other than Coal India to commercially extract the fuel.
“For commercial mining, the issue hasn’t been decided yet, but there is a probability of some big blocks being offered,” Shahi said.
“The mega blocks would include any block with a proven reserve of around 500 mt,” Shahi said at the Indian coal conference, organised by mjunction. He added small blocks might not add to the scale for commercial mining. “We need to give bigger blocks so that the miner can achieve economies of scale and compete.”
The demand for commercial mining has been gaining traction in the wake of slackness in coal output growth. The coal ministry is concerned that only 7 of the 34 coal functional blocks that were auctioned, are producing now. The remaining ones should start production at the earliest, Shahi said.
“In Chhattisgarh, we have an issue of stamp duty as the state government wants to levy it on vested block at current land value, which would be astronomically high. We are also facing issues about mutation of the blocks. In Jharkhand, as per state rules, mutation is possible only on sale or transfer of land. Here, blocks have been vested for which there is no provision,” he said.
After the passage of the Coal Mines (Special Provisions) Act, 2015 earlier this year, coal blocks have been auctioned so far only to power, steel and cement companies for their own consumption. An enabling provision in the Act gives power to the Centre to initiate auction of coal blocks to public and private sector companies for mining as well as sale of the fuel.
The government will invoke this provision to initiate commercial mining by the private sector, allowing entities like Essel Mining, Sesa Goa and global giants like Rio Tinto, BHP Billiton Vale to mine and sell coal and help ramp up output from country’s huge reserves – the world’s fifth biggest.
State-owned Coal India at present dominates commercial mining in India. But the company faces problems in meeting the needs of all consuming stations where coal demand is rising. Entry of new players is expected to ease the situation.
As per the plan, the government would first offer commercial coal mining blocks to state government-owned entities so that they could meet the needs of power producers or other state-based entities. This would be followed by auction of mines to the private sector.
“Allocation of mines to end-users instead of commercial miners is peculiar to India and the model hasn’t been successful. All over the world, it is commercial miners that take care of mining with their superior mining technologies,” said Partha Bhattacharyya, former CIL chairman and MD.
The government wants to take its coal block auction plan to logical conclusion with the aim of boosting coal production. Already a coal production target of 1.6 billion tonne by 2020 has been fixed. This has factored in a production of close to 200 mt from commercial miners other than CIL.
The auction of 204 de-allocated mines could generate a production level of 350 mt per annum by 2020. So far, the government has allotted 70 coal mines under the auction and allotment route in three rounds that fetched over Rs 3 lakh crore to state governments.
It is set to auction 8-10 mines for captive use of aluminium, steel and cement sectors in the fourth round later this month. Another set of mines would thereafter come for the power sector before blocks are auctioned without end-use restrictions (commercial mining).
Opening of coal sector is a long over due reform initiative that successive governments failed to take forward due opposition from CIL unions. The move aims to end a chronic coal shortage that cripples power units and reduce huge imports bill. Opening up the industry, will raise non-CIL output to 500-600 mt by 2020 from less than 50 mt in 2014.
The country faces huge demand-supply mismatch that results in imports of coal despite big price differential between domestic and international price of the fuel.
Imports touched 168.4 mt in 2013-14 from 29 mt only a few years prior to that. In 2014-15, imports reached closer to 200 mt despite best efforts to increase production by CIL and other coal producers. The government expects coal imports to reach 265 mt by 2016-17. This could result in shooting of import bill to above the $15 billion mark, even if prices remained at current levels for the next two years.
According to mjunction reports, between CIL and Singareni Collieries Company, they have earned incremental revenue of about Rs 30,000 crore by adopting the e-auction system.
“The aim of coaljunction, an arm of mjunction, has been simple. It wanted all coal consumers to have equal opportunity to buy coal. On the other hand, the client, the coal firms, wanted the sales process to be free of the shackles of middlemen which did not allow for optimum price discovery. It was a symbiotic need and the solution catered to both parties optimally,” said Viresh Oberoi, founder CEO and MD of mjunction Services, a 50:50 JV of Tata Steel and SAIL.
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