September , 2019
Challenges before commercial coal miners
16:54 pm

Kuntala Sarkar

Private companies in India were only allowed captive mining for cement, steel, power and aluminium industries until February 20, 2018, when the central government allowed them to enter the commercial mining segment. This move by the central government ended the monopoly of the state-owned Coal India Ltd. (CIL). This step by the central government was a major reform in the coal sector since its nationalisation in 1973. In August 2019, the central government escalated the process of commercialising coal blocks by allowing 100% Foreign Direct Investment (FDI) in coal mines.

Possible objectives

The Ministry of Coal in its report titled ‘Ministry of Coal Begins Auction of Coal Mines’ on August 5, 2019 informed, “As per the objective of auctioning of coal blocks, the government is auctioning 21 coal mines for  ‘End Use Non-Regulated Sector’ and six coking coal mines for end use iron and steel. In case of allotment, five coal mines are for power sector, nine for sale of coal and one for iron and steel. At peak rated capacity (PRC), these 42 coal mines will produce approximately 70 million tonne per annum (MTPA).” Electronic bidding will be conducted by the government’s e-auction platform ‘Metal Scrap Trading Corporation’ (MSTC) from October 10, 2019 to November 8, 2019. The decision will encourage private miners like Vedanta and Adani Group, who were looking for opportunities in commercial mining.

Coal India

At the ‘India Coal Market Conference 2019’, organised by mjunction, Manoj Kumar Singh, General Manager and Technical Secretary to Chairman, CIL, in his presentation stated, “With a total production of 606.89 MT during the FY 19, it accounted to 83% of the total coal produced in India during the period. According to a KPMG report, the demand of coal in 2019-20 is estimated as 1001 MT in which CIL will contribute 660 MT, SCCL 67 MT and captive coal blocks will contribute 83 MT.” The data shows CIL’s production lacks around 400 MTPA.

Apart from that, CIL’s cost of production, which stood at around Rs. 1300, is also escalating. India’s total coal import stood at 20.72 MT for April, 2019  which increased by 13.4% as compared to the previous year’s same month. Revealing the strategy to overcome the coal deficiency issue in India, Singh further added, “CIL’s growth plan for the future is in synergy with the ambitious plan of the government for 24X7 power supply to all homes in the country for which a roadmap to achieve 880 MT of coal production by 2024-25 has been finalised.”

India is estimated to have coal reserves of up to 300 billion tonnes. Coal India has not been completely successful in feeding the guzzling demand for coal in the country. Does the commercialisation of mining mean that CIL is incapable of meeting the coal demand of the country?

Global issues to attract FDI

International coal prices have fallen by 20-30% last year. Additionally, according to market insiders, low domestic coal prices are a reason for foreign firms to find coal mining in India less attractive. It will also be tough for private miners to compete with the CIL in India, where the organisation enjoys complete dominance. Singh said, “The cost of production must be minimised for any organisation to focus on increase of production.”

Orvifield Commodities is a South African natural resources, metals and mining and commodities trading business platform. Smangaliso Mahlangu who is the co-founder of Orvifield Commodities told BE, “The public sector needs to create a conducive environment for international investment to thrive. I think the public sector's role should be one of regulation.

My expectations from the Indian government would be that it creates incentives for international capital to flow in. Tax breaks can be an option.”

Mahlangu added, “International capital is important for the growth of the Indian coal industry. Large multinationals like Anglo American, Exxaro, Glencore, SASOL and South32 are not expected to invest as they are all divesting in coal due to international environmental pressure. Companies that are likely to invest are smaller companies with expansion plans. The offers are attractive for smaller players who are cash rich and looking to expand their business to other countries like India.”

Challenges for commercial miners

To mitigate the challenges due to cost of production, Partha Bhattacharyya, former Chairman, CIL, stated, “It’s better to have one big potential player to achieve optimised production, rather than having a number of small players in the market.” This observation questions the functionality of the recent policy shift.

Niladri Bhattacharjee, Partner at KPMG, said at the conference, “The commercial coal mining market can reach a size of about 50-60 MTPA by 2025. The estimation is 26-40 MTPA by FY 2025 from about 20-25 mines, considering 5-55 blocks may be put for auction next year. While the government has tried to enable commercial market through 25% market sale provision for captive miners, it has limited utility for captive miners. Additional premium of 15% is a further disincentive that can discourage optimal production.”


Add new comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.