The government proposes to allow captive coal block owners to auction surplus coal from their mines as it attempts yet another relaxation of regulations for the private sector to tide over the severe shortage of the resource in the country.
A new policy on disposal of surplus coal is being framed by the coal ministry that will allow captive miners to use the electronic-auction platform of Coal India (CIL) for carrying such sale of incremental coal. The move, while facilitating disposal of surplus coal, would also provide a major revenue stream for CIL. The e-auction of 10% of the CIL?s coal production accounts for over 17% of its total revenue.
Currently, private sector companies are not permitted to dispose of surplus production from their respective captive coal blocks without government approval. Such surplus is only allowed to be sold to the nearest CIL facility at a notified price decided by the government and state-owned coal miners. Notified prices are 50-60% lower than the international price.
?The main change in the present set-up would be to allow all surplus coal to be sold through the e-auction route. This would not only improve the availability, but also help in better price realisation for coal,? said an official in the coal ministry on the condition of anonymity.
Under the new policy, while private miners will be allowed to use the e-auction platform of CIL, they will be paid only the notified price for such sale and the difference between the notified price and bid price will be retained by CIL. Moreover, the captive coal miners would be responsible for all commercial liability pertaining to quantity and quality disputes.
?This is a very one-sided policy that will prevent captive miners from showing surplus production from their blocks. While the government could share a portion of the market value sale of such coal, they should also allow companies to benefit from it, so that they are encouraged to enhance production from blocks using modern technology,? said an official in a private sector power company.
The need for a change in policy has been felt because it is feared that, under the existing system, surplus coal may remain stocked at the pit-head, as infrastructural bottlenecks would prevent CIL to take physical possession of coal from the captive block owners in the cement, steel and power sectors. This could result in wastage of the national resource and make it susceptible to misuse.
?The problem could become acute once captive coal production rises,? said another official in the coal ministry. While over 208 blocks (with reserves of over 45 billion tonne) have been allocated under the captive route, just 30 are producing less than 40 mt of coal annually. But this number is expected to rise substantially to over 250 milion tonne (mt) in coming years when work on several mines starts. This is also expected to generate in excess of 50 mt of surplus production.
For CIL, it would also mean a substantial gain in revenues. Since its inception in 2007-08, CIL has seen the contribution of e-auction to its overall revenues rise sharply from about 12% to over 17% (2010-11). This is despite the fact that coal under the e-auction route has remained stagnant at 10% of CIL?s annual production.
CIL produced 431 mt of coal in 2010-11 and sold roughly around 40 mt of coal under the auction route. The realisation on the auction sale has been as high as 80% over the notified prices last fiscal, while the average realisation has been about 40% higher.
Under the provisions of the Coal Blocks (Nationalisation) Act, 1973, mining of coal or commercial sale by private companies is not permitted. While government wants to allow commercial mining by the private sector, it has been met with stiff opposition. At the moment, it is opening up the sector to the private sector without amending the Act. The changes have been necessitated by the huge shortage of coal in the country. According to a Planning Commission estimate, India would import over 200 mt of expensive coal by 2017 due to shortages in the domestic market. Imports are already slated to touch 142 mt in 2011-12.