https://www.miningweekly.com

Coal India unlikely to face significant competition from commercial coal miners

21st February 2018

By: Ajoy K Das

Creamer Media Correspondent

     

Font size: - +

KOLKATA (miningweekly.com) – Giving the final green light, the Cabinet Committee of Economic Affairs (CCEA) of the Indian government on Tuesday approved the methodology of auction of coal blocks to private miners, but analysts say that Coal India Limited (CIL) is unlikely to face significant competition in the medium term.

The approval officially marks the end of nationalisation of the coal industry in 1973 and the entry of private investors into coal mining with no restriction on production and merchant sales.

“The auction process will be transparent, as in the case of captive coal blocks, and will be based on the amount companies agree to pay as auction fee per ton,” Coal Minister Piyush Goyal said this week.

A government statement issued following the CCEA approval said, “the auction will be an ascending forward auction whereby the bid parameter will be the price offer in rupee per ton, which will be paid to the state government on the actual production of coal. There will be no restriction on the sale and/or utilisation of coal from the mine.”

Coal Secretary Susheel Kumar said that the objective of the coal sector reform is to improve productivity and ensure energy security, as 70% of India’s electricity is generated from thermal power plants.

However, industry analysts have pointed out that despite the end of its monopoly, CIL is not likely to face significant competition from private miners, at least not in the medium term.

The analysts maintain that it will be a long time before private miners are able to get projects into production and achieve volumes that could be a competitive challenge to CIL, considering the capital intensive nature of coal mining and the long gestation period of projects.

CIL will also be able to maintain its pricing edge over private miners. CIL supplies coal to thermal power plants through fuel supply agreements (FSAs), wherein the price of coal is significantly lower than the price of smaller volume sales by e-auction. During April to December 2017, CIL supplied an estimated 329-million tons of coal to thermal power plants under FSAs, while 82-million tons were sold through e-auctions.

Analysts say that it will be a challenge for private miners to determine their pricing based on CIL’s e-auction discovered price, which assures a higher margin realisation, but at lower sales volume, or to match CIL’s price on FSA, which will push higher volumes, but at lower margin realisations.

At the same time, since initial production volumes from private miners will be small, thermal power plants will not be inclined to conclude FSAs with private miners, the analysts add.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION