India pushes ahead with coal sector reforms
India's coal ministry has identified as many as 40 coal blocks with an estimated production capacity of 150mn t/yr for its maiden commercial coal mining auction to be held before the financial year ends in March.
The blocks are partially explored and can come into production within the next 4-5 years, a senior coal ministry official said today. This follows the federal cabinet's approval to amend key coal and mining laws to encourage more private sector investment in coal mining.
The amendment, via an ordinance or an executive order, is aimed at enhancing the "ease of doing business" and "the democratisation of the sector by opening it up to anyone willing to invest", rather than just auctioning blocks to companies with a committed end-use like electricity generation, coal minister Pralhad Joshi said yesterday.
Significant investment should be attracted as restrictions on end use have been dropped, the minister said. The change in rules will also pave the way for a company that wins a block via auction to use the coal mine for any of its subsidiaries or holding companies.
Joshi expects Indian domestic coal demand to reach up to 1.5bn t/yr by the fiscal year ending in March 2024. State-controlled Coal India (CIL) is expected to produce 1bn t by then, and the gap is envisaged to be largely met by boosting private-sector participation in coal mining and sales.
The opening up of the coal mining sector without any end-use restrictions is a very welcome move by the government, said CIL president Vikram Kirloskar. "Allowing 100pc FDI in coal mining will help India not only to harness its coal reserves which were earlier available only for captive use of steel and power but also help many leading foreign players establish operations in India with their new age technology in mining," Kirloskar said.
Eliminating substitutes
If everything goes as planned, the government aims to eliminate at least "substitutable thermal coal imports" by 2024 by increasing local coal output, the ministry official said. The commercial mining firms will not be allowed to export coal.
India is also taking steps to free up more coal deposits and broaden its auction pool. It recently cancelled the allotment of some big blocks — with combined estimated reserves of 3.2bn t — to state utilities, citing delays in development.
The ministry is also working on plans to have a single window for companies to seek approvals amid a broad aim to speed up government clearances for coal projects. India is infamous for its lengthy government process, running into years, which could derail any reforms of sector such as coal.
The coal ministry will soon hold another round of stakeholder consultations with consuming industries before taking a final call over a proposed national coal index, the official said.
The index is key to the auction plan as it has been created to help determine the government's share of revenue from coal blocks. But delays in making a decision have slowed the reform process for the sector as the auctions were initially planned for December 2019.
There is a lack of consensus in the ministry as to whether the constituents of the index — the notified price of coal produced by CIL and the value of coal sold via electronic auction and the landed cost of imported coal — will be enough to drive investor interest in the auction.
"Any tweaking to the proposed index will happen after the consultation," the official said, adding that the focus would remain on getting big companies into India's coal sector to boost local output.
Domestic coal output has been falling partly because of extended rainfall that affected CIL operations, although a five-month trend of declines was napped in December. CIL's output was affected yesterday by a nationwide strike called by major trade unions.
Imports have surged amid struggling local output. India's thermal coal receipts rose to 172.92mn t in January-December 2019, up from 158.52mn t a year earlier, provisional data from e-commerce firm Mjunction show.
By Saurabh Chaturvedi
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