Reservations expressed about India’s proposed rules for commercial coal mining auctions

KOLKATA (miningweekly.com) – As the government readies to open commercial coal mining to private miners for the first time since 1973, prospective private investors have raised reservations about the terms and conditions laid down by the Coal Ministry.

According to minutes of a meeting between the Coal Ministry and stakeholders held earlier this week, private investors have raised concern about a revenue-sharing proposal.

The minutes note that most of the participants at the meeting were opposed to the provision advocating that private investors share revenues from production at a rate of 1.2 times the ‘notified price of coal’ charged by government miner Coal India Limited (CIL).

Prospective investors pointed out to the Coal Ministry that CIL revised its notified price charged to various categories of user industries, irregularity, and that the lack of predictability of such changes in notified prices would make revenue sharing projections and cash flow management difficult.

At the same time, sharing revenues based on 1.2 times CIL's notified prices would force private miners to push up their own merchant sale price of coal and as such would render them uncompetitive with CIL, which is the country’s largest coal miner.

Besides representatives from the Coal Ministry, stakeholders present at the meeting included officials from private companies like Jindal Steel and Power, Adani Enterprises, JSW, Essel Mining, Lanco Infratech, Monnet Ispat, CESC, Tata Steel, GMR and SBI Capital Markets.

The private companies suggested that revenue sharing should be changed to a fixed-price model linked to the consumer price index.

Other issues flagged included past experience required to participate at the forthcoming auctions.

Some participants pointed out that blocks to be offered for auction may include greenfield blocks that will require developmental activities, such as land acquisition and securing mandatory approvals, and as such the prerequisite qualifications listed, such as material handling and bidder financial health of bidders, were not sufficient. It was suggested that prerequisite qualifications should be the same as in the case of government miners appointing a mine developer operator.

Pointing out an apparent anomaly in the proposed rules, one participant observed that the aggregate material handling experience of 25-million cubic metres, applied across a variety of minerals, was not justifiable as not all minerals were comparable in terms of volume. The stakeholder further noted that NMDC, despite being the country’s largest iron-ore miner, would not be eligible to participate at the auction under such a material handling norm, as the volume of iron-ore differed sharply from that of coal, and, therefore, different volume handling criteria should be stipulated for different minerals handled by bidders.

The Indian government has changed its legislative policy to open up commercial coal mining to private investors for the first time since the coal industry was nationalised in 1973. It proposes to auction coal blocks with estimated reserves of 30-million tons through auction in the first tranche.

Successful bidders will have full freedom for commercial mining and merchant sales of coal, which the new rules will facilitate by permitting private miners to mine for end-uses not determined by captive consumption.