Sales of surplus coal from captive mines to get a leg-up

Written by Subhash Narayan | New Delhi | Updated: Oct 15 2013, 11:19am hrs
Power companies such as Jindal Power, Adani, Sterlite and Essar Power could soon be allowed to divert surplus coal generated from captive mines to their other power projects won by participating in tariff-based bidding.

This means that an earlier facility of this kind extended to Reliance Powers Sasan ultra mega power project by an empowered group of ministers would now be the norm for others as well. The BK Chaturvedi Committee on surplus coal utilisation has favoured such diversion in national interest to accelerate domestic coal production by private players who are sitting on huge coal reserves of their captive mines.

The committee, which would submit its report by October-end, is also understood to have favoured more remunerative payment for surplus coal sold by private captive miners. Such commercial sales of surplus coal from captive mines would be priced based on an international index of coal prices rather than linked to cheaper notified price of coal in the domestic market. Notified coal prices are roughly 40% cheaper than similar grade of coal abroad.

The committee is in the final stages of firming its recommendations on ways to encourage surplus coal generation by captive miners. Various suggestions are being considered, but the biggest challenge is to get all stakeholders on board over the pricing mechanism to be developed for such surplus, committee chairman and Planning Commission member BK Chaturvedi told FE. Chaturvedi, however, did not elaborate on the specifics of the committees recommendations, but said that there was a need to incentivise private captive coal miners to generate more coal in overall interest of the nation that is staring at an increasing gap between coal demand and supply, straining the trade and current account deficits.

As per estimates of the Planning Commission, domestic production of coal would grow to 770 million tonnes (mt) by 2017 on the basis of projected annual growth of around 7% but by then the demand would shoot up to 1,000 mt, requiring companies to import of over 200 mt.

It is understood that in its report, the committee may also give captive miners the option to sell such coal at more remunerative pricing using the e-auction platform. Under this model, such surplus coal could be sold under a public-private partnership (PPP) model with CIL or any other government agency (either Central or state) through an electronic auction and the gains will be appropriately shared. E-auction has fetched 70-80% higher prices than notified price of coal.

Another proposal on operationalising the concept of Coal Banking immediately is, however, unlikely to be recommended by the committee as CIL is against providing guarantee to return coal to private players placed with it under a proposed banking arrangement.

The proposals will, however, be looked into from the point of a possible scrutiny by the Comptroller and Auditor General. The official auditor in an earlier report had termed the governments captive mining policy as flawed because it led to windfall gains for private sector companies.