Mining: Major investors anticipate potential in liberalised rules

Topics Mining  | Mining industry

Mining accounts for 1.63 per cent of GDP, and this is a small drop from 1.93 per cent in 2018-19
With the Covid-19 pandemic taking a  toll of the economy, the government has been quick to realise that meaningful reforms of the mining sector could be a game changer. Mining companies say the plans to introduce an exploration-cum-production regime that the finance minister announced in May for 500 mineral blocks has not come a moment too soon. “The minerals and resources sector is capable of contributing as much as 8 per cent to gross domestic product (GDP) by 2025,” says  Sunil Duggal, Vedanta group CEO and chairman of CII national committee of mining. 

Mining accounts for 1.63 per cent of GDP, and this is a small drop from 1.93 per cent in 2018-19 (mining here excludes petroleum and natural gas), according to a report by Federation of Indian Mineral Industries. “The sector’s size, production and share of GDP are not in sync with our rich mineral endowments,” says FIMI Secretary General R K Sharma. 

In fact, this is precisely the point that Prime Minister Narendra Modi made while announcing the electronic auction process for 41 coal blocks for commercial mining in June — a major step forward from the previous auction to the private sector for captive use. Reforms allowing commercial mining of coal plus the government’s decision to invest Rs 50,000 crore in building infrastructure for coal extraction and its efficient evacuation should, mining companies say, trigger the inflow of large private investment and best-in-class global mining technologies.  Ending the distinction between captive and non-captive mining will, according to Duggal, inject competition in auctions of mineral blocks. 

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. 

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