Private mining giants like Rio Tinto, BHP Billiton and others likely to partner with Coal India under a new public-private partnership (PPP) model in the works won?t have any ownership rights in these ventures but will do mining on a contractual basis for the PSU. Yet these mining companies, equipped with better technology and machinery than CIL, can gain from their efficiency and earn good returns. The new policy will help step up India?s coal output and curb the growth in imports of the fuel.
Coal imports have risen at close to 30% over the last three years to 100 million tonnes in 2012 (total domestic production is around 440 million tonnes a year), putting additional strain on the current account, which is projected to see a record deficit of 5-6% of gross domestic product in the current financial year.
Sources told FE that unlike in the oil and gas sector where the PPP model involves revenue sharing with the government, the PPP model being evolved for the coal industry would be in the form of pure commercial contracts. This would help the government from running into a legal hurdle ? the Coal Mines Nationalisation Act, 1973, explicitly bars private players in commercial coal mining. Any PPP venture that involves giving equity stakes to the private firms or even under a revenue- or profit-sharing model could be challenged in courts. While it is politically difficult for the government to privatise coal mining by amending the 40-year old Act, it is making all efforts to augment domestic coal production by involving public and private sector entities. The policy of being liberal in allocation of captive coal mines has resulted in an alleged scandal, with the Comptroller and Auditor General (CAG) estimating undue gains of Rs 1.86 lakh crore to private players between 2006 and 2009.
The government reckons that once the proposed coal regulator is in place, governance and regulatory issues facing the sector could be addressed to a large extent, facilitating the flow of private funds and technology through the PPP model.
Sources said the government plans to involve international miners Rio Tinto and BHP Billiton in the mining of coal from CIL blocks under a mine developer and operator (MDO) model which would be a purely commercial contract between the public sector coal producer and these private miners. Specifically, private miners would bid for CIL projects on the basis of per-tonne coal extraction costs and operate it on a contractual basis and without any ownership right. CIL has more than 200 coal mining projects where production is yet to start.
?In consultation with the finance ministry, we are working on bidding guidelines for the selection of private partners,? coal secretary SK Srivastava told FE. The guidelines will also require approval from the CIL board.
The ministries of finance and coal are trying to work out a viable PPP model for the coal sector. Sources confirmed that the two sides did discuss the revenue-sharing model but the idea was later dropped when it was realised that it would not be workable. ?If a joint venture route was adopted for coal production, private parties could be given only a minority stake. In that scenario, the public sector company would continue to hold management control of the JV, defeating the whole purpose of the PPP model,? a coal ministry source said. Also, the legal questions mentioned above could have arisen.
Significantly, this model has been used by various power companies to develop and operate their captive coal mines. For one, NTPC has appointed Thiess, an Australian miner, as its MDO for the Pakri Barwadih captive coal block.
CIL is unable to keep pace with the fast-growing coal requirement of the power sector, leading to increasing dependence on imports. According to the Planning Commission, domestic coal shortfall is set to go up to 240 million tonnes by 2016-17, the terminal year of the current Plan.
Finance minister P Chidambaram had hinted in his Budget speech that the government may adopt a PPP model to increase coal production. He, however, did not say what type of PPP model it would be.
The government has decided to try the PPP model in the coal sector because of its huge success in the oil industry. The new exploration licensing policy, a PPP dispensation based on a profit-sharing g model, was introduced in the petroleum sector in 1999. Under this, companies can recover the cost before starting to share the profits with the government. Since then, the sector has attracted investment of more than $20 billion and over 737 million tonnes of oil and gas output has been added. Leading global exploration companies like BP and British Gas have entered the Indian market. Following the proposals of the Rangarajan committee, the government is now looking at a revenue-sharing model for the oil and gas sector, under which the irrespective of whether costs are recovered, the government should be given its share of the revenue.