Commercial coal mining - is it timely?
There is a revolution that is sweeping the energy sector globally and in India. The balance now seems to be conclusively tilting towards renewable energy. And, this development is not entirely due to government subsidies, but because these sources of energy are financially viable on their own. Of course, there are some concerns about the quality of supply and backup, but there again a lot of investment is being made, for example, for developing grid-size storage technologies for solar power. The next three to four years are likely to witness epochal shifts in the way energy is generated and distributed. Coupled with these developments, coal mining in India has witnessed lower than expected demand. CIL, the state monopoly with an 80 per cent share in commercial mining, was struggling to meet the demand just a few years ago, but now they are increasingly finding it tougher to dispatch the coal produced, resulting in building up of stockpiles. But in spite of this, there has been no indication yet on relenting on their pursuit for a 1 billion tonne production by the terminal year of the current five-year plan. This begs the question then of demand from commercial coal miners. <br />
Although, India remains to be the largest growth market for coal (considering various parameters by BP Energy), one question hovers aroundùhow? With major mines in India are with Coal India, a government entity, the room for commercialisation of mines seems to be limited. Last year, the Ministry of Coal published a white paper titled,"Auction of Coal Mines for Commercial Mining", that claim to bring in private participation in commercial coal mining. <br />
"Commercial" coal mining is a bit of a misconception, but in India this has come to define the right of a coal miner to sell the products in open market. Here again, the permission to sell coal in the open market, which ideally should imply freedom to price products based on market demand and supply, has turned out to be a debating point for policy-makers. The so-called commercial coal mining itself is not a new concept either. Prior to de-allocation of coal blocks by the Supreme Court of India, and indeed even after the new legislative framework has been approved by the Indian Parliament, several coal blocks were and have been allotted to state-owned entities for commercial mining. A closer look at these entities and their strategies for coal mine development indicates that contract miners are the ones who operate the coal mines and the state entities bargain with potential buyers of coal for a share of rent from the price of coal they sell. So, while private sector ownerships of these coal mines have been restricted, there is no constraint on private sector participation, which extends from mine development and construction to transportation and taking the products to the market.<br />
Who would buy coal from a commercial miner with a 20 per cent premium over market price when they can get coal on market price from CIL? And, this also raises the associated question of being able to get a premium, when there is over supply in the market. At present, private sector firms are only allowed to mine coal for captive use in cement, steel, power and aluminium plants. The government may in near future scrap the present system of allocating coal mines for captive use and instead only auction mines for commercial use to private as well as foreign companies with a view to boost domestic product and cut imports. Coal is set to ride a wave of volatility as transport, underground mining, evacuation, pricing jostle for stability.<br />