Surplus coal to force India to halt coal block auctions

KOLKATA (miningweekly.com) – Surplus coal is likely to delay the auction of more coal blocks and is casting doubt over India’s plans to produce one-billion tons a year by 2020.

Officials in the Coal Ministry and at Coal India Limited (CIL) say it will be futile to put more coal reserves on the block, given the adverse business and investment climate in the sector.

Not only will there be a crunch in the number of investors willing to invest in new projects, but valuations at the auctions will fall short of government expectations. Officials say the situation does not warrant a “distress sale” of the national resource.

While the officials were cagey to commit to saying that a coal block auction is completely off the table, they conceded that “nothing on this front is likely in the immediate future”.

Halting coal block auctions puts the fate of India’s much-vaunted coal production target of one-billion tons by 2020 at risk.

No official prognosis on the chances of achieving the ambitious target has been made, although Coal Secretary Anil Swarup, in a recent media statement, was reported to have said that the target was very much in sight despite surplus availability and falling offtake. He also said that media reports about abandoning the target were “incorrect and I do not know how they emerged”.

However, with the coal block auction on the back burner, officials say the one-billion-ton target will exist on paper only, as there is no way it can be achieved from only currently operational mines.

Since last year, when the auction route was made mandatory for coal blocks, the Coal Ministry has allotted 31 blocks to successful bidders and another 44 were given to government mining and end-user companies on preferential basis.

According to a statement issued by Swarup, 13 of the coal blocks auctioned are operational, adding 20-million tons to the total coal availability, while the rest are expected to start production by March 31, 2017.

The national auditor, Comptroller and Auditor General, has issued strictures against the auction process, claiming that companies have made multiple bids through various joint ventures, therefore, representing a limited number of potential bidders. No clear comments were available as to whether this comment contributed in any way toward the decision not to push through with any more coal block auctions.

India’s coal production is rising at a rate of 9% a year reaching 536-million tons in 2015/16, with a current stockpile of 42-million tons at various CIL pitheads and stockyards.

Another estimated 28-million tons of dry fuel lies with thermal power producers, equivalent to electricity generation of 21 days. The Coal Ministry has pointed out that the target for coal production was set assuming a growth rate of 10% a year in thermal generation capacity, but that current the growth rate was pegged at 4%.