In the coming years, the demand for coal is expected to increase, despite challenges such as lack of financing options, skilled manpower and coordination among various government entities. While changes in the policy framework will be significant enablers, the increasing demand for coal will maintain the sector’s buoyancy. A notable development has been the approval of the National Mineral Policy, 2019. Greater investments and the enhanced role of the private sector are some of the likely outcomes of the new policy. Other policy initiatives such as allowing commercial mining of coal and allocating coal linkages in a transparent manner also bode well for the sector that has awaited these steps for a long time.
Recent policy developments
Of late, the government has been taking a number of enabling measures for the coal industry. In a big push to the mining sector, the cabinet recently approved the National Mineral Policy, 2019, replacing the National Mineral Policy, 2008. The policy aims to promote exploration activities and curb illegal mining; rationalise and auction reserved areas given to public sector undertakings, which have not been used, to incentivise private participation; and harmonise taxes, levies and royalties with world benchmarks. Besides, it proposes granting industry status to mining activity to boost financing and acquisition of mineral assets in other countries by the private sector.
With a view to increasing private participation and private investment in the coal sector and put an end to state-backed Coal India Limited’s (CIL) monopoly, the government has decided to auction coal mines to private companies for commercial mining. The decision is expected to boost technology-aided private investments in the sector.
The Cabinet Committee on Economic Affairs approved the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI), for allocation of future coal linkages in a transparent manner for the power sector in May 2017. The policy aims at providing coal to all power plants in a transparent and objective manner, cutting down the use of imported coal, and providing the benefit of reduced tariffs to distribution companies/consumers directly, among others. Under the scheme, auctions are to be undertaken on the basis of linkage allocations to independent power producers. The first round of auctions under SHAKTI received 31 applications. Of these, 14 bidders were found to be eligible to participate in the bidding process. Finally, 10 power plants, with discounts of 1-4 paise per unit on the existing tariffs, won about 27.18 million tonnes per annum (mtpa) of coal linkages for 25 years.
With regard to auctions, 31 coal mines have been auctioned to private/government companies so far. Of these, 25 have been allocated by way of auctions and the remaining six have been cancelled. Besides, 19 coal blocks have been allocated through the allotment route to central/state government companies.
In the fourth tranche of auctions, nine coal mines were put up for auction for the non-regulated sector – iron and steel, cement and captive power plants. Due to the poor response, online bids were not opened and the auction was annulled. In the fifth tranche, six coal mines were put up for auction for production of iron and steel as the specified end use. As there were fewer than three bidders, this round was also annulled. One of the reasons behind the tepid response was the adverse market conditions in the steel industry.
Despite the lukewarm response in the past two auctions, the government conducted the sixth and seventh tranches in light of the increased demand for coal. Of the 19 blocks to be auctioned under the two tranches, 13 mines were put up for auction in the sixth tranche and the remaining six mines in the seventh tranche. However, these two tranches have also been cancelled owing to some discrepancy in the bidding documents. The government had clarified that the successful bidder would be required to pay an additional premium of 15 per cent of the final price for coal sold in the open market. However, this was not clear in the bidding documents.
Player performance and targets
Coal India Limited
During 2017-18, CIL and its subsidiaries produced about 567.36 million tonnes (mt) of coal as against 554.14 mt in 2016-17, registering a year-on-year growth of over 2 per cent. During the same period, CIL supplied about 580.6 mt of coal, which was about 7 per cent more than the 543.3 mt supplied in 2016-17. South Eastern Coalfields Limited (SECL) was the largest producer amongst CIL’s subsidiaries. The company produced 144.71 mt, accounting for a share of over 25 per cent of the coal produced by CIL during 2017-18. SECL was followed by Mahanadi Coalfields Limited which produced 143.06 mt of coal. With respect to financial performance, CIL achieved a capital expenditure (capex) spend of Rs 86.97 billion as against a target of Rs 85 billion, thus achieving 102.3 per cent of its capex target.
By the end of 2017-18, there were 114 ongoing projects involving a capacity of 548.4 mtpa at different stages of implementation. CIL also identified 64 future projects, of which 21 projects, capable of producing 180.5 mtpa, were approved by the end of 2017-18. These are expected to be developed with a capital outlay of Rs 289.13 billion. Meanwhile, 21 environmental clearances for projects with a total capacity of 222.12 mt were secured during 2017-18.
Apart from creating new infrastructure, CIL has ensured the optimum utilisation of existing capacity by means of the linkage rationalisation scheme for the non-regulated sector. Though a roadmap to achieve more than 908 mt of coal production by 2019-20 was prepared, due to a combination of factors such as sluggish industry growth, change in energy mix, environmental challenges and land acquisition issues, CIL has shifted the time frame for reaching the goal to 2025-26.
Singareni Collieries Company Limited (SCCL)
SCCL operates non-coking coal mines in Telangana. Its production witnessed an increase of about 1.1 per cent, from 61.34 mt in 2016-17 to 62 mt in 2017-18. The company dispatched 64.62 mt of coal in 2017-18 compared to 60.83 mt in 2016-17. With respect to capex, SCCL allocated funds amounting to Rs 16 billion for 2017-18, a decline of 30 per cent from the Rs 23 billion it had planned for 2016-17.
SCCL has planned to invest Rs 120 billion till 2022 to achieve its targeted capacity addition. It is planning to start 13 new opencast and underground mines in a phased manner to reach the target production by the end of 2022-23. Meanwhile, SCCL has also approached the Ministry of Environment, Forest and Climate Change for getting clearances for these mines.
The country has a vast mining potential and is the leading coal miner in the world (in terms of production). The performance of the coal industry is also dependent on policy developments across other sectors. The Faster Adoption and Manufacturing of Electric Vehicles scheme, which pushes e-mobility adoption in the country, is expected to result in an incremental power demand of nearly 160 billion units by 2030. This, in turn, will result in an increased demand for coal. Though it is clear that commercial mining of coal is the need of the hour, it is expected to take at least 7-10 years for a significant increase in supply due to structural glitches. Meanwhile, factors such increased focus on sustainable mining (which mandated reduction in SO2 and NOX emissions), shift to renewable energy and other energy-efficient technologies, and a stricter regulatory environment are expected to have a bearing on coal demand. Nevertheless, coal mining is expected to pick up pace with the introduction of noteworthy policies and amendments in the existing policies. Greater investments and the enhanced role of the private sector are some of the likely results from auctioning coal mines for commercial mining. Judicial and institutional capabilities must be enhanced to not only increase output, but also to ensure a level playing field, thus attracting greater private participation.