Private outfits can mine coal with no end-use curbs

The private sector will have a greater role in India’s coal production after the Cabinet Committee on Economic Affairs approved a new methodology for auction of coal mines.

The government further opened up the coal sector, allowing for pricing and marketing freedom for production from mines offered under this mechanism.

“There will be no end-use restriction or price restriction for the coal that is mined from these blocks. The blocks will be awarded through a forward auction mechanism,” Minister for Coal and Railways Piyush Goyal told BusinessLine.

The opening up of the coal sector for commercial mining was the next expected step after the government auctioned coal blocks with end-use and price restrictions a year or so after coming to power.

In September 2014, the Supreme Court had cancelled 204 coal mining leases allocated to the public sector and private companies since 1993 under the provisions of Coal Mines (Nationalisation) Act, 1973.

The government was left with little option but to make enabling provisions in the Coal Mines (Special Provisions) Act, 2015 for allocation of mines by way of auction and allotment to state-owned companies for the sale of coal.

In March 2017, the government said 31 coal mines were allocated through e-auction and 51 by way of allotment.

An industry watcher said the auctions saw participation from Essar Power, Jindal Steel and Power, Jaiprakash Associates Ltd and GMR among others.

“For all the mines awarded till now, there was an end-use restriction that limited the utility of the coal. Companies were also restricted from passing through the higher cost of coal incurred due to competitive auctions.”

For the mines that were auctioned, coal production never reached the levels that the government had estimated.

Eventually, companies started relinquishing coal blocks. An official from a private power company that had won and then relinquished a coal block told BusinessLine , “The cost pass-through restriction made it impossible to sustain mining for coal.”

A game-changer

Based on the feedback, the government seems to have taken corrective action, with the new rules approved by the Cabinet on Tuesday.

Calling the commercial coal mining rules a game-changer across multiple sectors, Kameswara Rao, Partner and Leader — Energy, Utilities and Mining, PwC, said: “Power generators can source commercial coal to improve margins and availability. Further, as merchant power prices fall, power utilities and manufacturing industry too benefits from lower energy costs.”