According to finance minister Nirmala Sitharaman, not just fully explored coal blocks, but even partially explored ones will now be auctioned, and 50 assets will go under the hammer soon.
Going the whole hog in ushering in unrestricted commercial terms in India’s long-state-dominated coal mining business, the government on Saturday sought to buttress the policy liberalisation steps announced for the sector over the past couple of years, with a host of additional incentives for potential Indian and foreign investors.
According to finance minister Nirmala Sitharaman, not just fully explored coal blocks, but even partially explored ones will now be auctioned, and 50 assets will go under the hammer soon. Also, early production and in situ coal gasification (syngas) and liquefaction projects will be incentivised through rebates in revenue-share. Private investors could also seek to grab Coal Bed Methane (CBM) extraction rights for even the mines owned by public sector Coal India.
Additionally, the government seeks to make/facilitate infrastructure investments to the tune of Rs 50,000 crore in the sector, to ease evacuation of coal from pitheads.
The move is in recognition of the fact that state-run Coal India is expected to ramp up production to 1 billion tonne by 2023-24 (FY20 output was 602.2 million tonne, down 0.8% y-o-y) and private-sector output (56 mt in FY20) will likely rise manifold. The proposed investments will include `18,000 crore worth of investments in mechanised transfer of coal (conveyor belts) from mines to railway sidings, the minister said.
With coal imports surging and becoming a drag on the country’s current account (imports were $24.5 billion in FY19 and $18.3 billion in April-January FY20), the government has over the last more than two years taken a series of steps to populate the sector with more investors and technology players – in February 2018, it allowed auction of coal-bearing areas to private parties for commercial mining, ending the long-held monopoly of Coal India and in August 2019, it allowed 100% foreign direct investment (FDI) through the automatic route in commercial coal production.
However, as these steps haven’t improved the investment climate much, in January this year, it issued an ordinance to make available dozens of captive coal mines with abundant reserves of the fuel up for grabs soon, without any end-use restrictions. So domestic and foreign steel companies and also local power companies can now take part in the auctions to be held to reallocate the captive blocks cancelled by the Supreme Court in 2014. So far, only 90 of the 204 blocks cancelled by the apex court have been reallocated — including 60 assigned to PSUs on a nomination basis and 29 auctioned off — and just 29 of them are operational.
The new steps announced by finance minister Nirmala Sitharaman on Saturday is also in line with the policy to curb carbon intensity of the country’s economy by reducing fossil fuel emissions.
Welcoming the announcements, VR Sharma, MD, Jindal Steel and Power, said “substituting the 250 MT of coal we import every year with the domestic fuel will lead to huge forex savings and the move to promote coal-gasification will allow us supply the fuel to our power plants and fertiliser units through our own abundant domestic coal reserves.”
However, while the idea is 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 had 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”. BHP added that, “We do think this is a business whose demand will be under pressure, partly because of the transition towards cleaner air and to confront the challenge of global warming, but this is a resource that compared to some of our other commodities is in relatively high abundance, so we see squeezed margins in the future.”