After the near paralysis following the Comptroller and Auditor General report on irregularities in allocation of coal blocks that supposedly caused enormous revenue losses, potential bidders of earmarked coal blocks would ask for high levels of transparency. The bane of the coal sector has been the lack of competition with Coal India and its subsidiaries having total control over marketing. Steel and cement companies that own coal mines are barred from selling the mineral, a system that militates against transparency and price discovery.
At the same time, there is much unease in the government that India is the second largest importer of coal despite holding the world’s fourth-largest geological resources at 326.50 billion tonnes (bt), including 290 bt of non-coking coal. India’s coal imports in 2019-20 rose to 248.55 million tonnes (mt) from 235.24 mt the previous year. Metallurgical coal imports, which amounted to nearly 52 mt in 2019-20, are unavoidable. The mineral found here being of inferior quality could be used in steel blast furnaces only on blending with imported material.
Modi sees in commercial mining a facet of his “Atmanirbhar Bharat” and release of the coal sector from “decades of lockdown”. These reforms will not necessarily lead to the aspired self-reliance in coal, imports of which cost the nation $1.7 trillion in 2018-19, and then to a competitive exporter of the mineral. Opening a mine in India is a longer gestation exercise unlike in major mining nations such as Australia, South Africa and Brazil, with the lease holder here required to secure clearances from multiple offices at the state and central levels. Mining companies hope New Delhi and the mineral-rich states will start working in tandem to remove the irritants that miners invariably face after winning leases but before production starts.
What, however, is universally welcomed is the launch of the national coal index (NCI) so that transactions taking place on all channels are captured for periodic publication of the index. This is proving to be an aid for all potential participants in auctions to bid judiciously. The NCI could well trigger demand for a national mineral index, which will lend depth to the market for all traded minerals and inject liquidity in the market.
What mining majors are eagerly awaiting is how soon the government will start joint auctioning coal and bauxite blocks with the objective of improving the local aluminium industry’s cost competitiveness. There is reason for the government to share the concern of three primary producers of the white metal that around 60 per cent of local aluminium demand is met by imports. Coal-fired electricity and bauxite have a more than 50 per cent share of aluminium production cost. Ownership of adequate coal and bauxite deposits will automatically make local aluminium producers more cost-efficient. That will also incentivise them to build new smelting capacity.