Breaking the 41-year-old stranglehold of state-owned Coal India Ltd (CIL), the government has decided to offer 10 mines for auction as a first step in opening up India’s commercial mining market for coal. This comes seven months after the Centre had announced that the coal mining sector would be opened for commercial mining in 2017-18.
Four coal mines from Odisha are likely to be auctioned in the first phase — Chendipada, Chendipada-II, Mahanadi and Machhakata; four coal mines from Chhattisgarh — Shankarpur Bhatgaon II Extension, Durgapur II/Taraimar, Durgapur II/Sariya, Madanpur (North) — and one each from Madhya Pradesh (Dongri Tal-II) and Jharkhand (Mednirai). “The Centre is yet to decide the timeline to auction these ten coal mines,” sources said.
While 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.
In the beginning of 2015, the Coal Ministry had begun preparing for the auction of a few of the 214 coal mines that were de-allocated following the Supreme Court order of September 24, 2014. The top 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.
The three phases of the coal auction for nearly 45 coal-producing blocks were conducted in the seven-month period of February-August, 2015, but all of these were auctioned for captive usage by the company only and sale of coal on commercial basis was disallowed.
Although the decks are now being cleared for commercial mining of coal, the demand for coal in the near fiture is likely to remain tepid. In April this year, state-run 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”.
Asked about the feasibility of commercial mining given the current coal demand scenario, Kameswara Rao, Leader, Energy, Utilities and Mining at PwC India told The Indian Express: “For commercial coal mining to be truly successful, ideally, power trading and retail supply should be free from any restrictions. However, power sales to consumers are heavily regulated and utilities (distribution companies) are pushing back on open access approvals. This means commercial coal mining will see only a limited success for now.”
Rao, however, said: “Commercial coal mining will certainly attract the interest of power producers who today lack a long-term fuel supply agreement or suffer being supplied from a mine that delivers poor quality or is located at a further distance. So, the savings from the improved grade of coal or shorter freight distance can be bid as premium in the auction. This means interest will be largely local players.”
As per Coal Ministry estimates, the auctioned captive mines were expected to fetch mine-bearing states a cumulative revenue of Rs 3.5 lakh crore over a 30-year period. Both power and non-power sector participated in the same. For the government, it was a big success. However, the Coal Ministry had to cancel plans to conduct the fourth tranche of coal auctions, which were planned in January, 2016, as there was lack of demand from iron, steel and cement plants. The fourth tranche of coal auctions were only for them.
After a year of deliberations, on February 2, 2017, Susheel Kumar, Secretary, Ministry of Coal, announced the opening of coal sector for commercial mining. On March 27, 2017, the Ministry released a discussion paper on the topic of “auction of coal mines for commercial mining”.
According to a Delhi-based sector expert, the industry has raised various issues related to the discussion paper, and therefore, the government is taking its time to conduct the auction for commercial mining.
When Rao was asked how interested is the industry to participate in these auctions, he said: “The interest depends on the quality of mine put on auction, the bid conditions, and eligibility criteria. It’s hard to judge at this stage, but a good estimate can be made once one or two of these questions are answered.”