Development in coal mining for commercial purpose has proven to be a tough task to emulate for the Government, which is operating majority of the stake through Coal India Ltd.
Primary envisaged to reduce dependence on imports, the auction for coal blocks has not witnessed adequate response from the prospective bidders in recent times.
Incidentally, the allotment of five blocks in the previous tranche of auction was the first seen in the past 5 years, wherein the Gare Palema IV/1 block was later withdrawn from the list as it had failed to meet the actual valuation against the bid received.
Recently, the government has turned up with new set of reforms intended to simplify the constraints involved in coal mining. A total of 41 coal blocks have been identified for the current round of auction for commercial mining across five states.
With government determined to expedite the allotment process to utilize the existing reserve, we take a close look on some of the major concerns regarding commercial mining drawing attention from stakeholders for their views and opinions.
Tussle with state governments over clearances
Mining development in Chhattisgarh has already landed in hot water after the government requested centre to withdraw the five blocks which fall under Hasdeo Arand, Lemru elephant reserve and Mand river catchment area.
Although, no final decision has been made on the matter, the listed blocks which account for nearly 70% of the total geological reserve offered from the state are in danger of being pulled out.
Similarly, Jharkhand state government has filed a case in Supreme Court opposing the move, citing that carrying out mining without socio-economic and environment survey is gross neglect of environment, forest and especially tribal population.
In the latest series of event, the coal ministry has decided to withdraw Bander block on request made by MoEFFCC.
Growing Footprint of Renewables
India's approach towards a low-carbon emission path in line with the global commitments while meeting its developmental goals, reckons an underlying threat for the country that has been reliant on coal for years.
Given the must-run status for renewables and adequate availability of hydro power, the growth in coal fired power generation is at a risk despite the fact that a capacity of 6,765 MW was added during FY '20, at an increase of 22% Y-o-Y.
With little assistance from the sluggish economic activities, the coal-fired generation in FY '20 had fallen 3% Y-o-Y to 961.22 BU. On the other hand, generation from renewable source continued the steady growth in the period.
Several state-controlled as well as private-sector companies have already lined up big renewable energy plans, which are likely to adversely impact coal demand in the long-term.
Even the country's largest coal producer-CIL has been joined the band-wagon, as it has recently signed a MoU with NLC to develop 5,000 MW of solar and thermal power assets across the country.
Disparity over National Coal Index
The representative prices highlighted under National Coal Index (NCI) visibly indicate that the grade-wise coal prices have significantly exceeded the notified price set by CIL. Therefore, the sales of coal from the blocks acquired in the auction would always be at a risk of rejection as buyers would always prefer low priced coal supplied by CIL.
Stakeholders were also of the claim that weightage of imported coal should be taken much less while calculating NCI.
Raising concerns on the mechanism involved in NCI, a prospective participant expressed that, "In case, the share of imported coal is more, then the bidder will calculate the margins with current index which is currently inflated and later when imports reduce drastically, it would affect their margins as the buyers will always negotiate as per the prevailing index at that time."
Concerns over Grade Slippage
It has been observed that estimated grades are always higher than the actual mined grade, which became a cause of concern for the bidders as they demand applicability of index on actual grade of coal that is mined and not on the overall average grade including un-economical reserves or deep seated deposits.
Moreover, with only four blocks having coking coal reserves put up for sale, the auction is likely to witness lower response from the Steel manufacturers. As far as thermal coal is concerned, 17 blocks are having notified grade above G10, which is not enough to incite higher participation from bidders that seek higher coal grades.
One should also feel the need for incentive given to the successful bidders for putting coal washing plants, so as to improve the quality of coal and attract cost saving while procuring the block.
Intended Development for Coal Evacuation
Most of the time development of infrastructure for coal movement has been identified as a major constraint which even requires longer time than preparing the block.
In this regard, engagement of agencies responsible for proper evacuation has been demanded by the interesting parties, especially for the blocks in Odisha having high peak rated capacity in order to bring the railway network on fast track basis.
In addition, hassle-free coal movement by road-mode has been requested without drawing hindrance from government agencies such as NGT.
Issues pertaining to Payments
(a) Upfront amount: While total mineral resource has been taken into account for determining the upfront amount, bidders have opined that only the extractable reserve should be considered thus forbidding them to pay for the non-mineable proportions.
(b) Bid security: It was requested that the 25% of the estimated exploration expense payable for unexplored blocks should be lowered, given the fact that expenses incurred by CMPDIL would be higher than the International practices.
(c) Fixed cost of land: Many prospective bidders have also asked for relaxation on land area for calculating cost fixed amount based on the extraction already made by prior allottee of such block.
Tough Competition with CIL
Notwithstanding with the entry of private miners in commercial coal mining, CIL has said that they would stay ahead of the competition with a strong resource base, core expertise of operations, and updated mechanization.
Although, the ministry has specified that there would be no restriction on coal sale and its utilization from the blocks being auctioned, the prospective miners would feel the heat in contesting CIL which has been a cost effective producer apart from having a developed skill-set for carrying out operations in both open cast and underground projects.
Outlook
Government revealed that the initial response to the auctions has been good, where lots of participants have shown interest in registration for the mega event.
We anticipate that the auction would receive adequate response but it would be limited only to domestic players having end user plants. Nonetheless, fierce competition is anticipated majorly for the schedule-II blocks which have requisite statutory clearance already done.
With the country presently undergoing a revival in economy and seeing distressed condition of power sector it is safe to say that the coal auctions are not likely to get the similar reaction as seen in the iron ore auctions.
Detailed list of blocks put up for auction can be seen here.