The discretionary allocation of coal mines to public sector metal companies such as Nalco and SAIL has upset some private companies, which paid a huge premium for coal blocks at the recent e-auction.

These firms are set to write to the Centre complaining that allocation of mines to the unregulated sector would distort the playing field between public and private sector firms as the final product price is market driven.

The Centre recently allocated Utkal D & E coal mines in Odisha with 200 million tonnes (mt) of reserves to Nalco. Similarly, SAIL was allotted Sitanala coal block with estimated reserves of 100 mt under the new Mines and Minerals (Amendment) Act.

The discretionary coal allocation will bring down the cost of production for state-owned metal companies. The production cost for private steel companies will 4-20 per cent higher depending on how they source coal. Except SAIL and Tata Steel, most steel producers buy iron ore at a premium from NMDC, incurring a higher cost of 12-15 per cent.

“The government had devised a much more equitable policy in the spectrum auction in the telecom sector by making both BSNL and MTNL pay discovered auction price for spectrum. In the case of coal, the PSUs are not only getting it free but mines are also close to their place of operations,” said the CEO of an aluminium company.

Power, a key cost component Power accounts for 40 per cent of overall aluminium production costs. Some of the companies that bought coal mines in the e-auction have to incur an additional freight cost as the mines are far from their plants.

Uneven playing field Overall, the production cost of private sector aluminium companies will be 20-30 per cent higher than those of public sector undertakings because of the higher price they pay for coal.

“On the one hand, the government wants private sector companies to play a major role in Make in India, but on the other it is creating a non-level playing field by showering sops on PSUs,” said the CEO of another metals company.

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