Lack of pricing freedom leaves industry jittery on commercial coal mining

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India’s experiment with commercial mining of coal could face a red flag from the industry, which is concerned about the regulated market and stiff competition from state-owned Coal India (CIL). 

Since the industry is expecting only smaller mines to be offered by the Centre, it’s likely that the bigger players might give it a miss.

The coal ministry recently announced it will offer four coal mines to kick-start private commercial mining and sale of coal. 

Amendments to the Coal Mines (Special Provisions) Act, 2015, allowed commercial mining in the coal sector after a hiatus of 42 years.

Major players in the coal mining space, which, till now, have been mining development operators (MDOs) for CIL or the state-owned mines or the ones doing captive mining, are anxious that the Centre regulate the pricing and sale of coal.

Power and steel companies such as Adani, Jindal, Tata, NTPC, JSW, Hindalco are already in the captive mining space. Adani Mining is also one of the leading MDOs in the coal mining industry.

“Commercial mining and sale would have a different set of challenges, on getting a slew of clearances for land, forest, mining etc. Then, as a miner, I would have to pay levies and taxes, which is a lot of capital investment, at a time when there is surplus coal availability in the country,” said a senior executive of a leading steel company.

He also said that as the pricing would be set by either CIL or its benchmarked rates would be used, the market would still remain regulated. 

“If I am not allowed to sell at the price determined by me, or there is a cap on the sale, the market is not open and there is no level-playing field,” said the executive.

With CIL ramping up production to meet its one-billion tonne target by 2020, there is surplus coal available, especially for the power sector. Meanwhile, due to power demand not rising in the same proportion, the excess coal has touched record numbers.

“If my coal goes in the power sector, there is no surety of payment, as it would be demand-dependent. In the current scenario, when the power industry prefers backing down power supply than procuring more, demand deficit could plague the payment for the miner as well,” said an executive with a domestic coal mining company.

A sector expert also noted that coal supply to power sector would be out of the goods and services tax regime, so they won’t even get the input tax credit. “Conducive market is still missing for private miners,” he said.

Monopolistic competition from CIL, which is the only coal miner in the country till now, could also dampen the spirit of the private sector. 

“The R&R (rehabilitation & resettlement) policy of CIL is too attractive for the private sector to match. Unless the size of the coal mines is large, hardly any international player would enter the Indian coal mining space. There are already regulatory and non-regulatory hurdles, and then the ambiguity over incentives remains,” said Debasish Mishra, a partner at Deloitte India.

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