KOLKATA (miningweekly.com) –  India’s Coal Ministry is finalising a new coal policy aimed at liberalising rules governing captive and merchant coal mines against a backdrop of surplus  availability of the dry fuel in the domestic market.

The new policy is expected to be unveiled within the next month, after the Indian festival holiday season starting next week.

Among the changes proposed, the most major pertained to captive coal mines, with the new policy said to permit captive coal mining leaseholders making excess production available on the open market as merchant sales, an official in the Coal Ministry has said.

Explaining the rationale for liberalising the rules, the official said that merchant sale of excess production would ease pressures on mining leaseholders.

Captive coal mining lease holders are primarily steel producers and thermal power generating companies. Steel companies are reeling under low prices for finished steel and merchant sale from their captive coal mines will assist their cash flow and ease pressures on margins.

As for thermal power companies, their plant load factor is down to levels of 59%, compared with 70% to 75% about a year ago, owing to falling demand for electricity. This, in turn, has resulted in a sharp reduction in dry fuel requirements and excess production from captive mines.

However, the government will make it mandatory that all coal from captive mines made available on a merchant sale basis, is suitably washed or beneficiated at pitheads in line with government’s focus on ‘clean coal energy’.

Permitting merchant sale of coal from captive mines is also expected to open up a window for leaseholders to leverage the asset and woo fresh investment, the official said.

For example, steel companies, stressed by outstanding debts, would have the option of hiving off the captive mine into a separate entity and inviting foreign direct investment into the coal mine asset, the official said.

However, he was quick to add a caveat that given the depressed international coal business environment and concerns over climate change in developed economies, appetite for investing in coal assets was not too high either.

A back of envelop calculation indicates that at current average aggregate production from captive coal mines and average consumption of the dry fuel by respective user industries, an estimated 110-million tons of coal could be expected to flow into the open market.

While the changing the rules governing the production and sale of coal from captive mines is expected to have a salutary impact on leaseholders burdened with excess production, no clarity is available as to how government will tackle the issue of more coal flowing into an oversupplied market.

At the moment, Coal India Limited is saddled with pithead stocks of 42-million tons and another estimated 20-million tons are stockpiled at thermal power plants.