New Model: Privatisation kicks in with auction of 41 coal assets

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Published: June 19, 2020 3:20 AM

The mines that are going under the hammer are located in Madhya Pradesh (11), Chhattisgarh (9), Jharkhand (9), Odisha (9) and Maharashtra (3).

Once commercial mining picks up, it can potentially save Rs 30,000 crore per annum by substituting thermal coal imports.Once commercial mining picks up, it can potentially save Rs 30,000 crore per annum by substituting thermal coal imports.

As many as 41 coal mines with estimated reserves of 16,980 million tonne (MT) are up for grabs, with the government on Thursday launching the maiden auction after it allowed private players to bid for coal blocks, without any end-use restrictions. This would also be the first set of coal assets to be auctioned off through the new market-determined revenue share model that replaced the fixed fee/tonne regime that turned off private investors. Also, seven of these assets are unexplored ones, and the investors will enjoy certainty of tenure from the prospecting to the production stages.

The mines that are going under the hammer are located in Madhya Pradesh (11), Chhattisgarh (9), Jharkhand (9), Odisha (9) and Maharashtra (3). The assets also include two coking coal mines and two blocks with both coking and non-coking reserves. Land acquisition has already been completed in 12 of these mines. To attract investors, the requirement of prior experience for prospective bidders has been done away with.

Announcing the launch of auction, Prime Minister Narendra Modi said that “mineral rich areas have not prospered as they should have been” and that “reforms and investment in coal sector will bring in ease of living in the remote corners”. Assuring that the country’s commitment to the environment will not be compromised, Modi said that “the government targets to gasify 100 million tonne of coal by 2030 and I have been told that projects have been identified for this purpose where Rs 20,000 crore will be invested”.

Stating that the launch “marks a paradigm shift in the way business in the coal sector will be conducted,” coal minister Pralhad Joshi said, “commercial coal mining is expected to contribute about Rs 20,000 crore annually to states as revenue”.

Once commercial mining picks up, it can potentially save Rs 30,000 crore per annum by substituting thermal coal imports.

While the idea is to bring global mining giants such as BHP Billiton, Rio Tinto and Glencore into India’s coal mining sector, these firms are seemingly withdrawing from the sector in a gradual manner and as a result don’t seem to have a keen interest in India’s coal sector at this juncture. After the August 2019 Cabinet decision allowing 100% FDI in coal mining, Rio Tinto told FE that it is “no longer active in any form of coal production”. Mining major BHP too had said, “We do not expect to invest in our energy coal businesses for the lack of commercial viability.” Analysts, however, expect Indian players who have entrenched presence in user industries like power and steel might now bid for the coal blocks thanks to the removal of end-use restrictions and assorted regulatory reliefs.

A section of the industry, however, has raised concerns over the hefty taxes that coal miners have still to pay to the Central, state and local governments. Levies including royalties, Rs 400/tonne GST compensation cess and contribution to district mineral funds, work out to more than 50% of the base price of the fuel, much higher than in other coal-rich countries like Australia (7%), South Africa (11%) and the US (4%).

All India coal production inched up 0.05% in FY20, the lowest growth rate in at least 20 years, to 729.1 million tonne. State-run Coal India, which is expected to ramp up production to 1 billion tonne by FY24, produced 602.2 MT, down 0.8% y-o-y.

Captive coal output was 56 MT in FY20. So far, only 84 of the 204 blocks cancelled by the apex court have been reallocated — 36 auctioned off and the remaining assigned to PSUs on a nomination basis and— and just 20 of them are producing coal.

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