KOLKATA (miningweekly.com) – Coal major Coal India Limited’s (CIL’s) plans to diversify into chemicals and fertiliser was expected to hit a government roadblock.

According to an official in the Coal Ministry, the new Indian government, led by Prime Minister Narendra Modi, has frowned upon government-owned and -managed resources companies losing focus on growing their core businesses and instead investing in diversification.

While the Coal Ministry has not yet gone through the details of CIL’s diversification plans, it was expected that the government would promote the state-owned miner growing its exploration and mining operations rather than allied ventures, the official said.

CIL was working to amend its memorandum of association and seeking shareholder approval to enter allied businesses such as trading in gas from coal gasification and the production of ammonium nitrate and fertilisers.

If the enabling formalities pertaining to diversification projects had already been announced and approved, the government would not oppose it, but the same would not apply to new projects, the official said.

CIL had already partnered with Rashtriya Chemicals and Fertilisers Limited (RCFL) and gas infrastructure major GAIL India Limited to construct a coal gasification project. This would be linked as feedstock supplier to revive a defunct fertiliser plant located at Talcher in the eastern Indian province of Odisha.

Elaborating on the rationale for government's anti-diversification stance, the official said that in the very first presentations made to the Prime Minister, secretaries conveyed various Ministries’ concern over Oil and Natural Gas Corporation (ONGC) and Hindustan Petroleum Corporation Limited (HPCL).

The presentations pointed out that while oil exploration and production, the core businesses of ONGC had made tardy progress, ONGC was heavily invested in the downstream businesses of petrochemicals and fertilisers.

Similarly, oil refiner and marketer HPCL setting up sugar mills was cited as an example of a resource company losing focus, the official said.

Against this background, CIL had consistently been missing production targets and failing to successfully clinch coal assets overseas despite several attempts over the years. The present government’s priority would be to support the miner in expanding its core operations within the country and overseas.

Over the past years, CIL had received 17 proposals from overseas mining companies for equity participation in resource blocks but the latter had failed to convert these into firm deals largely owing to delays and governmental red tape.

In the very first week of taking charge the Coal Ministry nudged CIL into seeking to appoint a panel of technical consultants to assist in acquiring and operating coal assets overseas. Interested applicants had been asked to submit their proposals by June 23.

CIL last week announced coal production of 36.37-million tonnes during May 2014, down 6% from its monthly target. Coal production during the first two months of the current fiscal, April and May, was reported at 73.79-million tonnes, 3% off target.

Coal Minister Piyush Goyal last week directed CIL to prepare and submit a detailed action plan to increase output over the next five years and what was required to kick-start projects stalled for various reasons.