FOLLOWING ITS move to open up the coal sector, the NDA government is finalising a shortlist of about a dozen mining blocks that could be offered for commercial mining to private entities in the first round of auctions.
The shortlist of coal blocks — nearly all having at least 50 million tonne of reserves — include four mining blocks each in Odisha and Chhattisgarh, and one each in Madhya Pradesh and Jharkhand. By early next month, the Coal Ministry is likely to announce the timeline as well as the final list of mines that will be offered in the first round of auctions, a government official said.
The auction process is expected to be wrapped up by March 2019, with possible participation from international miners such as Rio Tinto and BHP Billiton being anticipated in the wake of “feelers” received by authorities from some global miners, the official said.
According to a shortlist prepared by the Coal Ministry late last year, the four mines from Odisha that are likely to be auctioned in the first phase are the Chendipada I, Chendipada-II, Mahanadi and Machhakata blocks. The four coal mines tentatively shortlisted from Chhattisgarh are Shankarpur Bhatgaon II Extension, Durgapur II/Taraimar, Durgapur II/Sariya and Madanpur (North). The block in Madhya Pradesh is a mine called Dongri Tal-II and the one in Jharkhand is another mine called Mednirai.
Coal mines such as Chendipada and Machhakata have fairly high estimated extractable reserves of 1244.37 million tonnes (MT) and 474.34 MT, respectively. Mines such as Shankarpur Bhatgaon II Extension and Mednirai have estimated extractable reserves of 80.14 MT and 80.832 MT, respectively.
Last Tuesday, the Union Cabinet announced its decision to open up the coal sector to commercial mining by private entities, a move that ended state-owned Coal India Ltd’s (CIL) 41-year-old stranglehold and opened up the mining sector for power, cement and steel producers to source fuel more efficiently.
CIL, alongside another state-owned company, is the only firm currently allowed to mine and sell coal. The rules, however, permit power, steel, cement and aluminium companies to produce for their own captive use.
The move to open up the sector was first announced on February 2, 2017, when Coal Secretary Susheel Kumar declared that the government would open up coal for commercial mining. On March 27, 2017, the Ministry released a discussion paper on the topic of “auction of coal mines for commercial mining”.
The opening up of the sector is expected to usher in competition in supply, reduce imports and help stressed power plants attempt a turnaround through better fuel management. This comes at a time when 46 major thermal stations are facing “critical” stocks of less than seven days, according to official data as of February 19, 2018.
According to experts, for commercial coal mining to be really successful, downstream sectors, such as power trading, should be freed from any restrictions.
Given that power sales to consumers continue to be regulated and state-owned electricity distribution companies are pushing back on open access approvals, commercial coal mining could see a limited success in the short run. Also, given the 50,000 MW (mega watts) of power projects under construction and in various stages of pre-construction, the Central Electricity Authority (CEA) — the apex advisory body in the power sector — has forecast that the country might not need any more coal-based power stations till 2027.
An enabling provision for commercial coal mining by private players was included in the Coal Mines (Special Provisions) Act, 2015, which the NDA government had brought in to replace administrative allocation of coal blocks with auction after the Supreme Court had in 2014 cancelled 204 coal blocks allocated to various state and private companies.
In the beginning of 2015, the Coal Ministry had begun preparing for the auction of a few of the 204 coal mines that were de-allocated. The apex court stated that the companies would have to return the coal blocks by March, 2015. Subsequently, the Coal Mines (Special Provision) Act was passed in 2015 that allowed the government to auction mines to private entities for mining and commercial sale.
Although the decks are now being cleared for commercial mining, the demand for coal in the medium-term is likely to be tepid. Last April, CIL was forced to cut its production target for 2017-18 from 660 MT to 600 MT due to lacklustre demand.
According to the July 2017 India Ratings report, domestic coal consumption growth in India is expected to remain “tepid on account of subdued demand from thermal power plants, with an expectation of plant load factor remaining sub-65 per cent in the medium term”.