KOLKATA (miningweekly.com) - While the Indian government is moving ahead to open up the coal sector for commercial mining by private sector investors, the Coal Ministry has ruled out any free pricing regime, considering the shortage of the dry fuel in the country.

The government would shortly launch the third phase of the coal block auction in which private miners and mining companies owned and operated by provincial governments would be entitled to participate and there would be no end-use restrictions of coal by successful bidders, a senior official in the Coal Ministry said.

However, a decision had already been taken by the government not to implement any kind of free pricing regime and miners would not have the power to set coal sales prices to final end-users.

Simultaneously, no private, domestic or foreign entity would be permitted to export the mined coal. The official noted that a free pricing regime could only be considered at some time in the future when the country’s entire demand for the fuel had been met leaving a surplus.

He conceded that a surplus situation could not be envisaged at present and that India would continue to be a major importer of coal even after opening up the coal sector, and until Coal India Limited (CIL), the largest miner, had achieved the government's target of one-billion tonnes a year production.

Indian coal imports during 2014/15 were pegged at 150-million tonnes and forecast to rise to 190-million tonnes in the current fiscal.

According to policy contours currently under preparation by the Coal Ministry, any free pricing regime in a shortage market carried the risks of market distortions and hence merchant sale of coal by commercial miners would need to have a control mechanism.

However, a final price regulating mechanism was yet to be worked out and various options were being reviewed, the official said.

One among them was adopting a weighted average methodology based on notified coal price charged by CIL and international coal price, he added.

Currently, CIL, accounting for 80% of domestic supplies of coal, followed a dual pricing regime: notified price and price discovered through e-auctions with the notified price generally being about 40% lower than the auction price.

But the Coal Ministry would have to make a call on whether to include e-auction prices in the weighted average methodology, now that the miner was increasingly volumes sales through the auction route.

The government recently lifted the cap on CIL’s volumes sales through e-auction. Previously, the miner offered about 12% of its total production for sales through the e-auction route but would not have the freedom to increase such volume offering and take benefit of maximising realisations by lowering sales through notified price.

The Coal Mines Special Provisions Act 2015, passed by the Indian Parliament last month, incorporated enabling provisions permitting private Indian and foreign miners to secure coal blocks through the auction route and undertake mining projects for commercial sale of coal.

Until now, coal mining had been the exclusive domain of CIL, barring captive mining by end-use companies in the steel, cement and power sectors.

About 94 coal blocks would be up for grabs through the competitive bidding route for commercial mining in the ongoing auction process.