Centre’s move to allow 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 has estimated.
The Cabinet Committee on Economic Affairs (CCEA) recently approved the methodology for auction of coal mines and blocks for sale of coal in the open market. Under this, the highest bidder will be given mining rights and there are no restrictions on end-use.
At present, about 94% of the mining is being done by government-owned entities Coal India Ltd and Singareni Collieries Company. India still meets a fifth of its annual requirement through imports, despite recent increase in domestic coal production, which costs about Rs 1 lakh crore.
“Participation of private miners would increase much-needed competition, enhance productivity by facilitating use of latest equipment, technology and services through higher investments,” sai8d Crisil in a statement.
Considering that almost half of the domestic coal reserves of 300 billion tonne, mostly non-coking coal, still remains unallocated, commercial mining can have far-reaching impact.
Sachin Gupta, senior director at CRISIL Ratings said: “Coal imports, especially of the non-coking variety, should reduce once the proposed regulatory changes to admit private sector companies in coal mining materialises. It will help the country come closer to its vision of producing 1.5 billion tonne of coal annually by 2022.”
Power, cement and steel will gain the most being the largest consumers of non-coking coal. In 2017, India imported 150 million tonne of non-coking coal at Rs 59,000 crore. As much as 90% of this was for 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 million tonnes for Rs 41,000 crore last fiscal.
Nitesh Jain, director at CRISIL Ratings said: “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 risks of inadequate fuel.”
Benefits of increased private participation in coal mining, will, however, depend on faster environmental clearances, availability of adequate evacuation infrastructurePrudence will also be required from bidders to ensure successful commercialisation of India’s largest natural resource Crisil has, however, warned.