by ajoy k. das
India’s Ministry of Coal has finished the process of identifying Greenfield coal blocks across the country that could be put up for auction by global resource majors. The move comes close on the heels of the government amending existing coal mining rules that will pave the way for 100% foreign direct investments (FDI), which will permit global miners to undertake commercial coal mining through wholly owned Indian subsidiaries enjoying free pricing regime and without any end-use restrictions.
According to government officials, the process of identifying appropriate coal blocks for foreign miners had been put on a fast track since the Ministry of Coal wanted to start the auction process by December and complete signing of contract with successful foreign bidders by 2020. However, the ministry has not yet set any specific timeline for the commencement of production from the coal blocks to be auctioned.
Nonetheless, the government is simultaneously holding consultations with coal-bearing states to frame the necessary policy interventions that would ensure that successful overseas bidders could bring Greenfield coal blocks into production within the shortest possible gestation period.
The policy interventions on the table for consideration include a “single window” for securing all mandatory approvals necessary before commencement of production like foreign and environmental clearances from the federal ministries. The federal Ministry of Coal is also asking coal-bearing state governments to automatically grant mining leases immediately after contracts are signed with successful bidders at the forthcoming auctions.
Officials said auctions to be held before the end of the year are intended to woo global miners like Glencore, BHP Group, Anglo American Plc and Peabody Energy. However, the officials declined to comment on reports that some global resource majors like BHP Group and Glencore have expressed intentions to cut investment exposures in coal mining.
Opening the domestic coal mining industry to foreign miners would end the near monopoly of government-run Coal India Ltd. (CIL), accounting for more than 80% of India’s supply. The coal industry, however, remains divided on whether the introduction of major global coal mining companies into India would impact the current dominance of CIL in the medium and long term.
According to a former CEO of CIL, major global coal companies coming into India were unlikely to erode the dominance of CIL in the short and medium term. They said that CIL could continue to secure coal blocks under preferential allotment dispensation for government-run companies. Overseas miners would have to commit large funds to secure coal assets through competitive bidding and amortization of such upfront investments, bringing the assets into production and ensuring positive returns on investments (RoI) would take a very long time giving continued long head-start to CIL.
According to an internal assessment of CIL, any new entrant in coal mining would take five to six years to bring a Greenfield coal asset into operation and another three years of operation to achieve full-capacity utilization providing the state miner enough time to ready itself for competition from private investors.
While the Indian government was expecting infusion of technology and mining efficiencies from global miners, the fact was that most global coal miners’ operations were in underground mining where Indian coal mining was predominantly open cast, officials said adding that about 30%-45% of global coal production was accounted for from underground mines compared to 90% Indian coal production from open-cast mining.
Holding a contrarian view, a section of Ministry of Coal said overseas miners would ensure higher mechanizations, state-of-art technology and achieve lower cost of production offering competition to the Indian state-run miner. According to rough estimates by the government, cost of production of CIL averaged at around Rs 1000 ($15) per ton while foreign miners could achieve cost of production of an average Rs 800 ($11) per ton.