The move to allow the private sector to commercially mine coal will boost both production and mining efficiency. Substitution of imported non-coking coal with domestic production could save roughly Rs 30,000 crore of coal imports, CRISIL estimates.
The Cabinet Committee on Economic Affairs (CCEA) recently approved the methodology for auction of coal mines/ blocks for sale of coal. Under this, the highest bidder will be given mining rights and there are no restrictions on end-use.
Currently, about 94% of the mining is being done by government-owned entities Coal India Ltd and Singareni Collieries Company Ltd. Despite the recent increase in domestic coal production, India still meets a fifth of its annual requirement through imports, which costs about Rs 1 lakh crore.
Participation of private miners, if allowed, would increase much-needed competition, enhance productivity by facilitating the use of latest equipment, technology and services through higher investments.
Considering that almost half of the domestic coal reserves of 300 billion tonne, mostly non-coking coal, are yet unallocated, commercial mining can have far-reaching impact.
Says Sachin Gupta, Senior Director - CRISIL Ratings, “Coal imports, especially of the non-coking variety, should reduce once the proposed regulatory changes to admit private sector companies in coal mining materialise. It will also help the country come closer to its vision of producing 1.5 billion tonne of coal annually by 2022.”
Power, cement and steel sectors will gain the most being the largest consumers of non-coking coal. In fiscal 2017, India imported 150 million tonne (MT) of it costing Rs 59,000 crore. As much as 90% of this was by imported-coal-based power plants, independent private thermal power plants and captive power plants. For imported-coal-based power plants, coal imports will continue due to their specific requirements.
Nonetheless, imports by independent thermal power plants and captive power plants can be substituted, once commercial mining picks up. These accounted for nearly 50% of the non-coking coal imports which can potentially result in import bill saving by Rs 30,000 crores.
As for coking coal, the benefits are moderate because India has limited reserves of this fuel, and imported about 40 MT for Rs 41,000 crore last fiscal.
Says Nitesh Jain, Director - CRISIL Ratings, “Commercial mining can ensure sustained coal stocks for industries, especially power. This can support the credit profiles of thermal power generators, which are currently facing the risk of inadequate fuel.”
The benefits from increased private participation in coal mining, though, will depend on faster environmental clearances, availability of adequate evacuation infrastructure. Prudence will also be required from bidders to ensure successful commercialisation of India’s largest natural resource.