Coal Mine Auctions Will Help Reduce Imports and Boost Exports
The new coal policy is a forward-looking measure that would result in monetising of a natural resource, feel experts. It has the potential of boosting technology-aided private investments in the coal sector while also enhancing market access of coal for the downstream industrial segments of power, steel and cement.
The process for bidding of select coal mines is well under way. The Ministry of Coal (MoC) has received 76 eligible bids for 23 of the 38 mines going under the hammer. The mines are located in the states of Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra and Odisha.
Among the notable bidders are The Andhra Pradesh Mineral Development Corp. Ltd (APMDC), Adani Power and Resources Ltd, Adani Enterprises Ltd, Bharat Aluminium Co. Ltd (BALCO), Dilip Buildcon Ltd, Jindal Power Ltd, Jindal Steel & Power Ltd (JSPL), JSW Steel Ltd, National Aluminium Co. Ltd (NALCO), Sunflag Iron & Steel Ltd, Vedanta Ltd and Welspun Steel Ltd.
The auction process for the sale of coal blocks was officially launched by Prime Minister Narendra Modi on June 18. The technical bids comprising online and offline documents were opened on September 30. Done in the presence of bidders, they were given the option of joining the meeting either in-person or virtually.
A multi-disciplinary technical evaluation committee will shortlist qualified bidders for participation in the electronic auction that will commence from October 19.
Although India has the world's fourth-largest coal reserves it still incurs a substantial bill for the commodity. In FY2018-19, the country imported nearly 235 million tonnes (MT) of coal, of which around 135 MT valued at Rs 1.71 trillion could have easily been met through domestic supplies.
Launching the coal blocks auctions in June, Prime Minister Modi had remarked: "Give it a thought! The nation with the fourth largest coal reserves in the world and is the second-largest producer in the world. Yet India is not a coal exporter, but the second-largest coal importer in the world! The question is: When we are one of the largest producers in the world, why can't we be the largest exporter?"
The development of a robust mining and minerals sector is, therefore, an important part of the Central Government's push towards self-reliance through the flagship Aatmanirbhar Bharat Abhiyan. The Ministry of Coal has also indicated that it will end the import of substitutable coal in the next three to four years.
NATIONALISATION OF COAL MINES
In the early 1970s, the Government of India took over the management of coal mines in two tranches. The process kick-started with the nationalisation of coking coal mines in 1971-72, followed by non-coking coal mines the following year. With the enactment of the Coal Mines Act, 1973, all mines were nationalised.
The move was prompted on account of alleged unscientific methods adopted by some private firms and sub-human working conditions of coal miners. The only exceptions were the states of Northeast India that are empowered by the Constitution to formulate their policies concerning natural resources under the local tribal laws. Since then, coal mining in India has been the monopoly of state-owned behemoth Coal India Ltd (CIL). The sector was partially opened up to allow private miners to undertake coal mining only for captive consumption with restrictions on the sale of coal in the open market.
Forty-four years later, in 2016, the government announced its intent to allow commercial mining by private firms from FY2017-18.
MAKING COAL MINING COMPETITIVE
The government incorporated provisions to facilitate the entry of private entities into coal mining through the Mines and Minerals (Development and Regulation) Amendment Act, 2015. The legislation sought to introduce transparency in the awarding of mining licences after the Supreme Court in 2014 annulled the allotment of 214 coal blocks made since 1993, citing irregularities.
However, in December of that year, the government was forced to invalidate captive coal auctions due to poor response from steel and cement firms.
Experts whom INFRASTRUCTURE TODAY reached out to had a positive view of the new coal policy. Saying that it was directed at developing a market-based approach towards supporting the growth of industrial sectors dependent on coal as fuel, they termed it a forward-looking step that would result in monetising of a natural resource. In their view, it has the potential of boosting technology-aided private investments in the coal sector while also enhancing the market access of coal for the downstream industrial segments of power, steel and cement.
Satnam Singh, Director Energy, CRISIL Infrastructure Advisory, said, "There will likely be several benefits of commercial coal mining. Private investments in coal mining are likely to increase in the absence of any restrictions in end-use. Imports of coal will come down as production from these blocks comes on-stream. The quality of coal will improve as commercial miners can undertake selective mining and blending through proper planning and operations."
According to Singh, new benchmarks for efficiency would be established and the increase in production in the long-term will make coal pricing more competitive.
A FILLIP TO PRODUCTION
In their interactions with INFRASTRUCTURE TODAY, senior MoC officials identified evacuation, environment and forest clearance, land acquisition and local law & order issues as major challenges in coal mining. The MoC claimed to be following a specific strategy to address these issues.
For instance, earlier all evacuation activities were being performed by the Indian Railways. However, a few years ago, a decision was taken jointly with the state governments to set up joint ventures (JVs) in each of the states concerned. Under these JVs, each evacuation line is an independent profit centre. Similarly, the ministry is also investing in mechanisation for improving the turnaround time in filling up rakes.
Secretary, Ministry of Coal, Anil Kumar Jain said that MoC was already in discussion with the Ministry of Environment, Forest and Climate Change (MoEF&CC) to reduce the time taken for getting forest clearances.
Speaking at an event organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), Jain said, "Environment clearance has become much easier now. We are talking to the Ministry of Forest and are hopeful that in the next few months the time taken to get forest clearance will be reduced."
He further added that the government was trying to reduce the time frame usually needed to get a coal mine operational.
"The government works to provide you (industry) with solutions. We don't intend to only auction the mines but also ensure that the production starts and that we develop a good market for it," he assured.
Jain also said that if the need arises, the government would spend Rs 500 billion to improve the evacuation infrastructure to further improve the transportation of coal.
M Nagaraju, Joint Secretary & Nominated Authority, Ministry of Coal, said that the industry had responded very well to the coal blocks auction. "We are making the process of owning and operating a coal mine simpler and transparent. We have set up a project management unit (PMU) to help us operate coal mines," he added.
Prime Minister Modi had earlier pointed out that reforms in the minerals sector had received strength from coal mining reforms since minerals like iron, bauxite and others were located near coal reserves.
Kameswara Rao, Leader Energy, Utilities and Mining, PwC India, opined, "The policy certainly recognises the importance of energy in our economic growth and the government has initiated a few measures to support implementation. The scheme provides incentives and institutional support to expedite mine development and production. The stakeholder consultation may address some current hurdles in, say, land acquisition, stamp duty or transport connectivity that may allow speedier development."
Rao felt that the current auction was a big step towards the commercialisation of the sector. A more competitive market would need further work, such as setting up an exchange and unwinding of past contracts, which may come gradually over an extended period.
The beginning of auction for commercial coal mining is expected to benefit all stakeholder industries. State governments would earn more revenue, while a huge section of the population would find employment.
Meanwhile, the government has expressed commitment to protecting the environment through the use of latest technologies in coal mining.
"The latest technology can be introduced to make gas from coal and the environment will be protected with steps like coal gasification. Coal gas will be used in transport and cooking, while urea and steel will promote manufacturing industries," Prime Minister Modi had said at the launch of the coal block auctions.
The government has set a target to gasify around 100-million-tonnes of coal by the year 2030 and four projects entailing an investment of Rs 200 billion identified.
Pralhad Joshi, Union Minister of Coal, Parliamentary Affairs & Mines, had observed at the launch of the coal blocks auctions, "This auction process marks the opening of Indian coal sector for commercial mining and will enable the country to achieve self-sufficiency in meeting its energy needs and provide thrust to economic development and employment generation."
Upon attainment of the peak rated capacity of production of 225 million tonnes (MT), these mines shall contribute about 15 per cent of the country's projected total coal production in 2025-26. This is also expected to employ over 280,000 people, with direct opportunities for nearly 70,000 people and indirect to about 210,000 people.
DEVELOPMENT OF TRIBAL BELTS
The reforms are also expected to generate approximately Rs 330 billion in capital investment in the country for up to seven years. These auctions will contribute Rs 200 billion in revenues annually to governments of the states where they are located. Moreover, 100 per cent FDI in the sector is likely to result in the rollout of best international practices, latest technologies and mechanisation in mining operations.
As far as the Aatmanirbhar Bharat Abhiyan is concerned, self-reliance will result in the substitution of imports by independent thermal and captive power plants, resulting in the saving of foreign currency. This will also provide a boost to the regulated and non-regulated sectors by ensuring sustained coal stocks for industries. The implementation of the National Coal Index will mark a move towards a free-market structure.
These reforms will also help in the development of the tribal belts in eastern and central India, which are also hotspots of left-wing terrorism and are part of the infamous "Red Corridor" that runs through eastern, central and southern India. Despite having a large number of NITI Aayog identified "Aspirational Districts", these areas have remained impoverished, making people living in these areas vulnerable to exploitation as day labourers in distant cities or recruitment by Naxalite-Maoist insurgent groups.