Captive mining of coal is being given a policy push and these mines are up to 25% less expensive compared to public-sector Coal India’s mines, but the new strategy is unlikely to change the dynamics of the sector anytime soon. This is because CIL’s weighted average cost of coal production would come down in the short to medium term as it shifts out of many costlier underground mines.
In the 12th Five-Year Plan, the PSU is not venturing into any new underground mine.
Besides lower cost of production, captive-coal operators also have significant savings in transportation which is on an average 10-20% of the CIL coal price at the receiver-end. Further, the government is contemplating a mechanism to allow sale of surplus coal by captive-mines operators using the e-auction platform anchored by CIL subject to their sharing the profit with CIL. But the difference between CIL’s mining costs and that of captive mine operators is going to narrow in the medium term, making the latter less attractive than earlier envisaged.
Of course, since the demand for coal is rising much faster than domestic production (coal imports are much costlier), it would still be prudent for major power producers to have captive coal mines.
NTPC, Jindal Steel and Power and various state power utilities operate captive coal mines. Out of the country’s total coal production of around 500 million tonnes (mt), only 40 mt comes from captive mines at present.
The (weighted) average cost of coal mining for CIL is around Rs 1,200 per tonne, while that for captive coal mine operators like NTPC is Rs 900-1000 per tonne. But with CIL’s high cost baggage of underground mines gradually declining and its old mines with low stripping ratio still under production, the company’s mining operations would work out to be the cheaper in the coming years.
?Our cost (of mining) cannot be compared with any other mining operations because we have a huge burden of underground mines where the cost of mining is Rs 3,000 per tonne and also our overhead cost is higher. But our older mines gives us the advantage of low stripping ratio of 1.5:1 which any of the new players will fail to get from their mines,? CIL chairman and managing director S Narsing Rao said.
In mining, stripping ratio or strip ratio refers to the ratio of the volume of overburden (or waste material) required to be handled in order to extract some volume of ore. For example, a 3:1 stripping ratio means that mining of one cubic meter of ore will require mining three cubic meters of waste rock.
Out of total CIL production of around 450 mt, nearly 130 mt has a stripping ratio of 4.5:1 while another about 280 mt comes from older mines with very low stripping ratio of 1.5:1. The cost of mining in the older mines (with low stripping ratio of 1.5:1) for CIL works out to between R700 R750 per tonne only.
State-owned NTPC is also set to start mining from its captive Pakri Barwadih coal block in Jharkhand to produce power.