It is the same story in other states, too. The cost of the additional capacity has to be apportioned among stakeholders, leading to higher fixed costs. Moreover, under the Director General of Mines’ rules, capital equipment in mines have to be discarded in seven years, as against the global average of over 10 years. This, too, increases the cost of mining.
A report by the US Energy Information Administration states that India’s demand for coal would expand at a faster pace than China’s upto 2040.
Sunil Chaturvedi, chairman and managing director of Gainwell Commosales, one of India’s largest mine development operators (MDO), says that since coal mines have to be wound up in less than 20 years, owing to the environmental guillotine, bidding for mines is not commercially exciting. “The government expects clearances for the mines to take about five years, so the effective time available for the investor to make good on his investment is less than 15 years.”
Given the scale of investment needed, Chaturvedi says his company does not plan to bid.
Madan Sabnavis, chief economist at Care Ratings, also has tepid expectations. “We expect some interest from the private sector, (where) end-user industries have been starved of coal, compelling them to rely on imports,” he says.
Left to themselves, the Indian firms would have wanted the auction to be limited to themselves. While they have welcomed the auction, they have also told the government about their misgivings, sources said. A recent Business Standard report noted that they asked the government to consider lowering the bid security and upfront payment amount.
One major concern of Indian mining companies is the difficulty of raising the finance for the bids. Bankers, too, admit in private that they are not keen to finance the bidders at a time when coal prices are sluggish and becoming less bankable each year. Some MDOs have the wherewithal to run the new mines. But since they have limited pan-Indian presence and are unlisted, they cannot expect to raise money at competitive rates.
The other possible bidders are the small-time consumers — companies that come under the Coal Consumers Association of India (CCAI). The CCAI members, who run sponge iron, paper, and cement units mostly in Eastern India, are junior partners in India’s coal hierarchy. While cumulatively they have a large demand for coal, their individual demand is often less than a million tonnes per year. Up till now these companies have depended on the production from CIL through coal linkages (company-wise quotas.)
Many of these companies are keen to bid for the mines, 11 of which are in Madhya Pradesh, nine each in Chhattisgarh, Odisha and Jharkhand, and three in Maharashtra. But they have even less financial muscle than MDOs. Hence, they are concerned that Chinese mining firms will out-bid them. “We buy the tender documents every time the ministry announces plans for an auction, even when there was a restriction on end use,” one of them said.
That leaves the national-level companies like Hindalco, JSPL, JSW, CESC and GMR, which had bid for the earlier lot of coal mines at prohibitive prices. The government had then tied the mines to permitted end use. (Except for mines like Sarishatoli of CESC, many of those mines are yet to go into production.) Some of these companies will be keen to bid, but are miffed that the new lot of coal mines are far better value than the earlier batch that was auctioned. The higher valuation of the new mines, which are unencumbered assets, will certainly lower the valuations of the earlier lot. However, the coal ministry
has no plans to free the end-use restrictions of the earlier lot. The legal challenges are too many to allow for the conversion, sources said.
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