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Commercial coal mining: Has the bubble burst too soon?
Non Coking
5285 Reads
27 Aug 2021, 17:23 IST
Steel Mint Insights

The Indian government had introduced commercial coal mining by bringing in key reforms to transform the existing coal block allocation scheme in a bid to enhance domestic coal availability. However, dwindling interest in coal block sales has made the vision a distant reality so far.

After successful completion of the first tranche of auctions, stakes were high in the second phase as the Nominated Authority had offered an expanded pool of 67 coal blocks which were carefully handpicked keeping in mind certain factors that may obstruct mining operations and such mines were not considered.

Interestingly, these were the highest number of blocks on offer in a particular tranche after commencement of the auctions regime since 2014.

Nonetheless, in a major contradiction to the initial trends, interest was elicited for only 19 out of the 67 blocks offered in the technical round. Of which, only eight blocks received more than one bid as per the eligibility criteria for the final bidding round and were eventually auctioned.

The current allocation scheme does have a provision for re-sale of the remaining 11 coal blocks which have received single bids in a subsequent auction process. But, even when the complete sale is considered, the second round would fetch a success rate of 28% against an allocation of 19 out of the 67 coal blocks being offered.

In contrast, the first tranche had garnered a higher success rate of 53% where 20 (including re-sale of Kuraloi block in the second attempt) were sold out of 38 blocks put under the hammer.

Key take-aways from second tranche of auctions

The auction witnessed emergence of newbies in the commercial mining fray, like South West Pinnacle and Shree Satya Mines, but at the same time, tepid response was seen from the end-user plants.

Overall, the auction provided little joy in terms of bid premium as the blocks were sold at an average final price offer of 30.06% against the initial price offer of 12.34%.

The silver lining came from the sale of Rauta block booked at a final price of 75.5%, which incidentally is the highest ever bid quoted for a block post-introduction of the revenue sharing model for auctions.

In particular, aggressive bids were received for coal blocks having lower geological reserves and of superior grade whereas the least final price offers of 6% came for the two partially explored blocks, indicating the risk averseness of the bidders with respect to exploration activity and the long gestation period involved.

Coal Auction Winner List

CoalMint's take

It would be inappropriate to say that the prospect of commercial mining in the coal sector is bleak or that the whole system has failed.

But, there is no denial of the fact that these miners would face intense competition from Coal India which has an established mining footprint with advanced state-of-the-art technologies. Furthermore, it is committed to increasing production in the coming years.

Along with that, emergence of alternative fuels has been a constant threat to the future of coal.

Hence, the coal ministry needs to reconsider the sales criteria and should allocate the coal block that receives single bids to save time and effort of stakeholders participating in the re-sale. Besides, the government can also lend a helping hand by providing swift clearances for mine openings.

All in all, the latest sale of eight coal blocks having geological reserves of 800 million tonnes (mn t) would infuse annual capacity of 8 mn t once operational, which are decent numbers for a country determined to curtail costlier imports.


27 Aug 2021, 17:23 IST
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