These MDOs, which include names like Adani Enterprises, BGR Mining & Infra Ltd, Sainik Mining & Allied Services Ltd, Sical Logistics and Ambey Mining, are likely to be the major bidders for commercial mining contracts. The entry of foreign companies would depend on the bidding conditions.
What are these conditions? The methodology was set out in a February 2018 announcement, in which the coal ministry stated that the opening up of commercial coal mining
for the private sector is “the most ambitious coal sector reform since the nationalisation of this sector in 1973”.
Under the Cabinet-approved methodology, the auction will be in an ascending forward auction under which the bid parameter will be the price offer for every tonne paid to the state government on volumes produced. Simply put, whichever bidder offers a higher share of revenue per tonne gets the block.
How far this plan will progress remains an open question. Since the January 2016 enabling provision, there has been little progress on commercial mining auctions. In fact, the ministry of coal’s five-year vision plan for FY19-24 has not accounted for any production from commercial miners. It can be argued that since FY24 is less than five years away and the government is yet to hold an auction for commercial mining, it is realistic to estimate no or very small production from this category of blocks.
All the vision plan envisions is 14 per cent of total production or 154 million tonne from captive miners and others. Compare this to 880 mt production estimated to come from CIL plus 85 mt from Singareni Collieries, a joint venture between the Telangana state government and the Union government. In fact, a report from a high-level committee under Rajiv Kumar, vice-chairman, NITI Aayog, recently noted that captive mining leads to sub-optimal utilisation of mines since production and requirement of coal by the end-use plant could defer. It, therefore, suggested all contracts be shifted to commercial mining in one year’s time.
This major policy shift, then, intends to introduce greater efficiency in coal mining by ending CIL’s monopoly and attracting best-in-class technology. What, however, is missing is a vibrant coal evacuation infrastructure such as railway lines, modernised washeries and the private sector’s capability to operate transparently.
The biggest gap in the policy is the absence of a mechanism to ensure that the price of coal is such that the biggest coal user — the power sector, which works on the lowest tariff benchmarking — is able to honour power purchase agreements. Whether commercially mined coal available of the shelf from operators offering the highest revenue share can generate power for cash-strapped distribution companies remains an unanswered question.
Assuming that some commercial coal blocks are given out to private companies by March 2020 and they are able to start production without issues of environment clearance and land acquisition in the next two years, will such mining be viable given that no new coal power plants are being planned and the manufacturing sector can barely sustain itself? Conversely, if demand outstrips supply, as at present where there an estimated 90 mt shortfall, it is also important that a parallel effort is made for regulations so that there is both a level playing field for all categories of coal producers and greater transparency in the pricing of domestic coal.
Besides, in the move towards commercial mining and a vibrant market for coal, there has been no discussion on environment and safety related challenges, both of which are seen as hurdles rather than prerequisites that need attention.
In 2012 when Coal India could not meet industry’s demand, a presidential directive was issued to the company stating the company must meet 80 per cent of the requirements of power producers. Since then, the Union government has been mediating between the coal users and suppliers to get the equation right. Despite the new legal framework, the sector continues to rely on CIL matching demand expectations even as private miners go in for the safer MDO route, leaving the Union government to look at ways to bridge the gap between demand and supply. This state of affairs is ironic in a country with the fifth largest coal reserves in the world.