KOLKATA (miningweekly.com) – The Indian government will put five to ten coal blocks up for auction by the end of November to usher in commercial mining for the first time in the country.

According to a senior official in the Coal Ministry, the auction for this lot of coal blocks for commercial mining would follow the auction of eight to ten coal blocks exclusively for industries such as steel, cement and aluminium for captive consumption and where the end products of these companies were not price controlled by government.

He said that, since the aim of launching commercial mining in the country was to bring in standalone large mining or resources companies, coal blocks with large reserves had been identified by the Ministry, each of which could yield capacities of around 20-million tonnes a year, larger than the average coal mines auctioned until now for captive coal user industries.

Earlier this year, the Indian government amended the legislative environment through the Mines, Minerals Development and Regulation Act 2015 with enabling provisions to auction coal blocks to standalone mining companies, both domestic and foreign, who would have the freedom for merchant sale of coal to any user industry, barring exports.

However, no clarity was available on the sale and pricing guidelines for standalone miners successful in the auction for commercial mining.

The bulk of coal production in India, with 80% accounted for by government-owned and managed Coal India Limited (CIL), was price administered by the government with small volumes sold through e-auctions by the latter.

With the proposed establishment of a coal sector regulator with a mandate to set prices having been put on the backburner, a few pricing options for merchant coal miners were being considered but no final decision had been taken yet, the official said.

He added that one of the options for pricing commercially mined coal would be to benchmark it to the e-auction price of CIL product. The second option under consideration was to set up a common auction platform for commercial coal miners, which could be operated and managed by any of the government-owned trading firms such as MMTC Limited.

Since early this year, the government has completed the allocation of 60 coal blocks, with 34 through the auction route and the balance awarded to government companies such as power utility NTPC Limited and Steel Authority of India Limited through the government preferential route.

However, some Coal Ministry officials expressed concern over responses to the auction for commercial mining coal blocks, given the current downturn in international coal prices. Even domestic mineral and mining companies, particularly those in the private sector, faced a severe debt overhang, with the steel sector alone accounting for over $50-billion of stressed bank borrowings.

Much of the success of the auction and subsequent valuations of the coal blocks would depend on the government’s recent road shows overseas, including the recent visit of Steel and Mines Minister Narendra Singh Tomar, to Australia, with the latter government assuring it would facilitate global resource majors, such as BHP Billiton and Rio Tinto, increasing investment exposure in India, the Ministry official added.