Pricing holds key to launch of private coal mining in India

KOLKATA (miningweekly.com) – The extent of pricing freedom for private commercial coal miners is likely to be revealed by India’s Coal Ministry next month.

According to a government official, the Ministry will, at the end of March, publish the framework for opening the coal mining sector up to private miners for the first time since 1973, and is expected to give indications on the pricing methodology that private coal miners will need to follow.

However, no clarity is available yet on whether coal produced by private miners will be up for merchant sale based on market forces or benchmarked to the prices of Coal India Limited (CIL).

The official says the framework document will be published for public comment and will pave the way for inviting private miners to bid for coal blocks to be put up for auction exclusively for such use.

As reported by Mining Weekly Online, the Coal Ministry has identified 23 coal blocks that will be put up for auction next year.

Among these blocks, one will be allocated to a government miner, while 16 others will be allocated for commercial mining and the rest to sectors other than power generation companies.

The allocation of blocks for commercial mining will, for the first time since 1973, when coal mining in the country was nationalised, permit the private sector to produce and merchant-sale coal in the open market.

However, at least two officials from private thermal power companies and one independent analyst have pointed out that the success or otherwise of auctioning coal blocks to private miners will hinge on the pricing freedom offered by the government to such miners.

It has been pointed out that it is most unlikely that private coal miners will be granted full pricing freedom based on market forces. Sale prices are likely to be based on a methodology benchmarked to the pricing mechanism of CIL sales.

Pricing will also be critical to the response and valuations of coal blocks at the auction since India has not yet established a regulator for the coal sector, which is essential in any free pricing regime based on market dynamics.

The officials and analysts observed that the size of coal blocks on offer in the first stage of the auction could be much smaller than those operated by CIL.

Under such circumstances, private miners with relatively small volumes at their disposal will be hamstrung in achieving competitive pricing even with full pricing freedom in the face of huge volume play in the market by CIL.