FE exclusive: Captive mine delays slow coal output

By: | Updated: December 21, 2015 4:51 AM

‘Could hit energy sector’s momentum’

Coal IndiaWhile CIL’s output grew close to 9% so far this year upon a 6.8% increase registered last year, the total domestic coal production grew just 4.5% in April-November 2015 compared with 7.8% in 2014-15. (Reuters)

Even though Coal India’s (CIL) production had accelerated since last year due to stiffer targets and administrative focus, the delays in resumption of operations at captive coal mines re-allocated through auction earlier this year have put brakes on the output of the fossil fuel. While CIL’s output grew close to 9% so far this year upon a 6.8% increase registered last year, the total domestic coal production grew just 4.5% in April-November 2015 compared with 7.8% in 2014-15.

Electricity has been one of the bright spots on the patchy economic landscape in recent months. Growth in domestic coal production also reduced the reliance of power plants on expensive imported fuel. Analysts, however, said further delays in re-starting the captive mines that have changed hands could hamper the energy sector’s ability
to sustain the current momentum.

According to coal ministry officials, however, almost all of the 34 operational captive mines that have been re-allocated after the Supreme Court’s cancellation of the previous allocations would start mining by the end of this fiscal. Currently, only eight of these mines are producing.


The re-disbursed captive coal mines have a combined production capacity of over 50 million tonne (MT). But the production from the sector, which includes many state government mines that have remained operational, stood at just 18.7 MT in April-November, down 47% from the year-ago period, reflecting their gross under-utilisation. Apart from the sustained increase in CIL’s production, good performance by Singareni Collieries Company (up 24% in the first eight months of this fiscal), which is jointly owned by the

Telangana government and the Centre, also helped counter the decline in captive mines’ output.

Sources said besides a lack of clarity, many among the new winners of captive mines have been struggling to procure state-level clearances. The biggest impediment has been states’ insistence on levying stamp duty as mines changed hands. However, the miners contend that since there is no financial transaction involved and what occurred was a mere transfer of mining right, no stamp duty is payable.

“Although the Coal Mines Ordinance makes it clear that mining rights are vested in the new firms, some states have not quite grasped that,” a senior coal ministry official told FE. He added that the ministry had issued a clarification in this regard last month and subsequently the process of transfer of ownership resumed in many states.

“Even in the case of operational mines reallocated, it takes a significant amount of time for a new operator to start production as machines and equipment are to be moved and other preparations including revision of the mining plan have to be completed,” the official said.

Some of the operational mines were allotted to the state power companies, like in Rajasthan and Punjab. They are currently being provided tapering linkage by Coal India to run their power plants.

Despite curtailed production from captive mines and tapering linkages provided to power plants attached to these mines, the coal stock at power plants at the beginning of this month was sufficient for 21 days of power generation, compared with eight days at the same time last year.

Experts believe that the subdued demand growth and capacity addition has ensured that the current coal production looks healthy. However, the country would need to ramp up production as demand grows and the thermal plants achieve a higher utilisation (plant load factor). In November, the plant load factor plummeted to 60% as overall demand remained suppressed.

On an average, the power demand for April-November has grown 5% compared with 6.5% last fiscal. Although demand jumped in September and October to hover around 10% year-over-year, it slumped to 0.5% in November primarily due to the floods in Tamil Nadu.

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