With private commercial mining in place, India to stem coal imports significantly

---

---

February 20 of 2018 will be remembered as the D-Day in the annals of coal history of India. On this day the Cabinet Committee on Economic Affairs gave the ‘go ahead’ for auctioning coal mines to private players, heralding a new era in the country’s coal and power sector.

In spite of an improvement in Coal India’s (CIL’s) production and several instances of pithead stocks touching 70 million tonnes in the past, coal imports to the country have continued unabatedly. Latest in this is the numbers of this January. Data collected from various shipping sources by Indoen show thermal coal imports to India witnessed a surge of over 25% to about 13 million tonnes in the month against 10.47 million tonnes in the corresponding period of previous year.

Officials from coal, power as well as steel ministries had for long been vouching for the entry of private sector in commercial mining in a big way as they believed that this will create an efficient model or mechanism for companies, ensure better handling of coal during transport, and improve the efficiency of supply chains.

It is pertinent to note that the provisions of the Coal Mines Special Provision Act 2015 allow private companies to mine coal commercially and sell it in the open market. However, the government had until now allowed only state-run companies to do so. The country kept deferring plans to open the sector to private players. Some private end-user plants that were allowed mine coal would mine it only for their captive use and the surplus if any would be added back to CIL pool.

An official from coal ministry told Indoen that he welcomes the entry of private players to commercial mining. He thinks this is much needed since the current policy measures don’t curb imports, and it has only increased along time despite all government efforts.

Analysts think the move will also go a long way in improving the quality of the fuel.  

“With the entry of private players, production and production efficiency are expected to go up. It will no longer be the monopoly of CIL. There will be competition among several entities. All of these private firms will invest big time in coal washing to enhance the quality of coal which will bode well for the power sector,” a coal sector analyst who doesn’t want to be named said.

“Stock piled up in various pitheads due to lack of rail network is a critical issue. Private companies will bring in private transportation to take the coal to consumer’s doorsteps. This will ensure a steady supply to the power plants,” he added.

Distressed power plants will no longer worry about uncertain fuel supplies as now they can contract with commercial coal suppliers to revive their projects.

It is estimated that about 25,000MW of generators don't have regular power purchase agreements with distributors. At present they sell power occasionally at power exchanges. The government says about 75,000MW of generation capacity is currently under different stages of implementation and will be added to the main stock by the year 2023.

Bigger companies that can work in all three major aspects of the power sector such as coal mining, generation and transmission will be the game changers. India being one of the major importers of power grade coal, larger volumes of domestic production will also work towards keeping prices in international market places under check.  

Giving a ‘thumbs up’ to the government’s decision a coal trader from Mumbai said: “The entry of foreign multinationals will be a boon for the industry. Foreign companies such as Rio Tinto will bring in latest technologies and innovations and best practices which have been so far absent in India’s coal sector. This would create a benchmark for Indian mining companies.”

Policymakers believe that in India most of the demand for quality coal comes from privately-owned companies.  They look for buying better quality wares and there is less demand for fuel from them for domestic sources. With quality parameters gaining prominence over pricing for them, it becomes cheaper to import from countries such as Indonesia, or buy in bulk from countries such as Australia. But once the quality parameter comes in the locally produced coal, the imports will gradually go down. Private entities can very well match the quality concerns of power, cement and sponge iron industries in the country.

CIL’s efforts to set up washeries haven’t gone too far to attain the desired results as it couldn’t tide over the regulatory bottlenecks such as land acquisitions and environmental issues. The coal major has been kept engaged in a series of legal tussles from several quarters.  Private players are expected to tackle this more efficiently and speedily.

A CIL official who requested anonymity said: “In India coal and mining sectors were never considered independent. They were always looked upon as subordinate sectors to other industries. Coal was always considered as a raw material for power sector nothing else. With entry of private players this is expected to change. The end user will get more choices. Mining industry will also be spurred to undergo improvements.”

CIL doesn’t view the new development as one that is detrimental to its interest in the domain. It knows that in the current situation power sector will still have to meet most its fuel requirements form it in foreseeable future.  

It is heartening to see that the government has signaled its intention to reform the coal sector.

Coal and Railways minister Piyush Goyal said: “It will increase competitiveness and allow the best possible technology into the sector. The higher investment will create direct and indirect employment in coal bearing areas, especially in the mining sector and will have an impact on economic development of these regions.”

Will the government decision, which is the biggest reform in coal sector since nationalisation of it in 1973, cut coal imports?

While the move is likely to ramp up domestic production reducing country’s dependence on imported coal, it will certainly enable India to save hugely on its foreign exchanges. In recent years, India’s average coal import bills have been around US$15 billion. Another likely fallout could be a significant reduction in the power tariffs. 

To make the scheme successful, it is imperative on the part of the government to put larger blocks in auction in sufficient numbers. Only this can attract huge investments to the sector. 

Major trade unions, however, have opposed the move saying it is an attempt to hand over coal mines to foreign companies. They also apprehend that private miners would not do mining ethically.