New Delhi: After more than five-year wait, the government may finally throw open the doors of the regulated coal sector for commercial mining by the private sector comprising both Indian and overseas miners in July.
Government sources said that draft rules, bid documents and agreements for commercial mining has been prepared and finalised and it would be approved by Cabinet soon before auctions start. In the first phase, a total of about 80 large and small mines would be put up an auction for commercial mining.
The government was looking to start auctions in April but lockdown due to Covid-19 outbreak has delayed the process. Government is also reaching out to potential investors including multi-national corporations to ensure the success of its reform initiative. Indian missions abroad have also been activated to identify and get investors on board for possible participation in the auctions.
The decision to permit commercial coal mining would allow domestic mining firms like Essel Mining, Sesa Goa, JSW Energy, Vedanta, Adani and global giants like Rio Tinto, BHP Billiton, PesBody, Glencore and Vale to mine and sell and help ramp up output from the country's huge reserves -- the world's fifth-biggest. It will also offer an additional source of fuel for power producers, some of whom often face low coal stocks at their plants.
In order to address the concerns of the potential bidders, the coal ministry conducted pre-bid consultations stakeholders in Kolkata and Mumbai in February. Based on the suggestions received, the government has now agreed to ease bidding conditions that would form part of the document that would go for cabinet approval.
A source said that government is considering allowing a composite route for potential bidders of commercial coal mine and offer simultaneous prospecting and mining lease to bidders to ensure certainty on the investments made by the bidders. This would also prevent companies from making aggressive bids that put the company in a difficult financial situation at the production stage.
The bidding document may also offer larger flexibility to prospective companies in terms of revenue share commitment. Draft auction guidelines have proposed a floor price of 4% of revenue share for the auction and bids are to be accepted in multiples of 1% of the revenue share till the percentage of revenue share is up to 10% and thereafter bids would be accepted in multiples of 0.50% of the revenue share. This may be reduced to facilitate ease of bidding and true price discovery.
Also, the bid document may incentivise companies who also offer to undertake coal gasification from mines won by them. The revenue share for coal gasification would be kept low to the active participation of companies.
The success of the first bidding round for commercial mines would have to be weighed against lack of investor interest in some of the recent coal auctions for end-user plants. Also, the existing slowdown in power demand and disruptions in economic activity may also result in lower interest for commercial mining rights. Government is this working overtime to see through the success of its initiative.
"It is a tough time to get investment commitment from investors even for commercial mining. However, the location of mines and quality and reserve of coal could change investment decisions," said a coal ministry official, adding that size of coal blocks Inder commercial mining route would be substantially large.
The commercial mining auctions could see in all 15 large coal blocks with an annual production potential of 5-10 million tonnes being put up for bidding in phases. The reserves in five of these mines could be in excess of 500 million tonnes. These could fetch anywhere between Rs 5,000 and 6,000 crore to the state government. However, in all 80 blocks would be put under the hammer in phases that would also include smaller mines.
If the pilot auctions are successful all future blocks could be considered to be offered for commercial mining with permission even for captive use by end-use plants.
As of now, power, steel and cement companies can mine coal but for their own consumption after getting blocks through auction. State-owned Coal India (CIL) dominates commercial mining in India.
The government in January issued an ordinance that lifted end-use restrictions and opens the coal sector for commercial mining. Legislation relating to opening up of coal mining has already been passed by Parliament.
The methodology for auction is expected to ask bidders to submit upfront payment and bank guarantees. While the government will not regulate price, marketing or sale of coal, minimum production from the commercial coal mines will be specified. Bank guarantees will be linked to the production schedule. Overseas companies bidding for mines would have to get themselves register in India.
Sources said the price of coal to be sold by new entrants in mining may be determined on the basis of a formula that would fix prices by taking a mean of the weighted average price of global benchmarks as well as prevailing Coal India prices. It would be akin to the gas sector where prices are not market-determined but fixed by the government based on global indices.
Opening of the coal sector is a long-overdue reform initiative that successive governments failed to take forward due to strong opposition from CIL unions.