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Interaction | February 2015

Most mines allotted to private miners are in geopolitically sensitive areas

Sushil Maroo, MD & CEO, Essar Power Limited

The government is of the opinion that the productivity of coal mines owned by independent coal miners is inefficient despite access to the latest equipment as well as capital resources. Whereas production from mines owned by government PSUs is actually satisfactory considering labour issues and access to capital market. How would you defend this argument?
In general, there are some basic differences between the mines allotted to government PSUs and mines allotted to/owned by Independent Power Producers (IPPs) or private miners. The mines allotted to IPPs/private miners are comparatively more difficult to mine. For example, the stripping ratio of mines allotted to IPPs/private miners is as high as 13 compared to an average strip ratio of 2-2.5 of mines allotted to government PSUs.

Further, most mines allotted to IPPs or private miners are located in geopolitically sensitive areas like Jharkhand and Chhattisgarh. Another important aspect is the regulatory hurdles faced by IPPs/private miners for development of the mines, examples being notification and thereafter reversal of ´Go/No-Go´ classification system of mines, land acquisition rules for mining area, etc. The proper government support, especially in terms of speedy regulatory clearances, IPPs/private miners can develop and operate coal block in a highly economical and efficient manner.

Meanwhile there is a perception that the private companies after the allocation of coal mines have made a windfall gain out of improved stock market valuation...
Market valuation is based on the intrinsic value of the project or company. Any project which has assured access to continuous supply of fuel (raw material) and strong fundamentals will command strong valuations. We have seen that projects with assured access to economical fuel, whether in the form of captive coal blocks or coal linkage, have witnessed strong market valuations.

Despite having had these mines in possession for quite a long period, a number of mine owners were not able to utilise them. Why?
As discussed above, delays in regulatory clearances and harsh on-ground situations like geopolitical issues are the major reasons why most miners are still to utilise the mine and coal efficiently. Going forward, we are seeing rapid action and policy clarity from the government/regulatory authorities, which should expedite the regulatory clearance process. Quick and clear regulatory clearances will pave the way for miners to utilise the mines/coal productively.

Which are the best practices you think will be applicable for the sector? Is it through allotment or bidding?
The Indian coal and power sector is in a state of transition with a strong deficit (coal as well as power) situation. In this deficit scenario, potential irrational bidding adopted by even some market participants may spoil the market with long-lasting negative effect on the sector. Considering that discretionary allotment process may lead to a non-level playing field for many participants and may also encourage unscrupulous practices, it is advisable that where demand of scarce commodity like coal is high, auction with proper guidelines can achieve the national objectives. To ensure that the benefit of efficient mining is passed on to the end consumers, the Coal Regulator should be strengthened with more regulatory as well as adjudicatory powers. Globally allotment and auction practices are followed based on the demand and supply scenario of the commodity in picture.

Will the current e-auction help
in ushering in the highest possibility of transparency? In terms of process, transparent e-auction is the best process for price discovery. However, in the current coal bidding the first round of ´closed bid´ (indicative offer) defeats the purpose of transparent e-auction.

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