India eases auction rules to usher in commercial coal mining

KOLKATA (miningweekly.com) – To successfully break out of the more than four-decade-long nationalisation of the coal industry, the Indian government will ease rules for the auctioning of ten coal blocks.

To open up commercial mining of coal to private miners, the government will neither be setting a minimum reserve price, nor will there be any net asset value of the coal blocks to be put up for bidding.

Instead, investors offering the highest royalties, based on their own respective assessment value, will be granted the right to mine blocks, officials have said.

A winning bidder will have full price freedom for production and will also have no restriction on merchant sales, the officials added.

Since the nationalisation of the coal industry in 1973, the Indian government has permitted private mining of coal, but only for captive consumption to the linked end-use plant.

It has been acknowledged that auction rules have been eased because of the sluggish performance of the mining sector, which contracted by 0.7% during April to July quarter.

The following blocks are up for auction in the first phase: Chendipada, Chendipada II, Mahanadi and Machhakata in the eastern province of Odisha; Shankarpur Bhatgaon II, Durgapur II Taraimar, Durgapur II Sariya and Madanpur in the eastern province of Chhattigarh; Dongri Tal in Madhya Pradesh; and Mednirai in Jharkhand.

The Chendipada and Machhakata blocks have the highest estimated reserves of about 1.24-billion tons.

Industry sources have pointed out that considering that the government had to cancel a round of coal auctions to captive users in steel and cement industries, the response for commercial mining of the dry fuel is likely to be muted.

With most steel companies already carrying balance sheet stress, the response to commercial mining is expected from power producers, which do not have fuel linkages, the sources added.

At the same time, since India has a limited number of standalone mining companies, it is not clear as to how many of them will be in a position to aggressively bid for the blocks as a free market for coal is yet to evolve in the country.