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Indian captive coal miners likely to be allowed merchant sale

16th July 2018

By: Ajoy K Das

Creamer Media Correspondent

     

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KOLKATA (miningweekly.com) – In a forthcoming revamp of coal block auction rules, India’s Coal Ministry is likely to allow captive miners free merchant sales of 25% of production in a step towards blurring the distinction between commercial and captive mining.

The move towards greater flexibility for captive coal miners is aimed at ensuring higher participation for the auctioning of 19 coal blocks in the current financial year and comes against the backdrop of two previous planned rounds of auctions being cancelled owing to poor investor response.

At present, captive coal miners with end-use plants are allowed to sell their excess production only to Coal India Limited at the “notified’ price of the major.

Based on recommendations of a committee appointed to revamp auction rules and as reported by Mining Weekly Online earlier this year, the Coal Ministry has veered round to the view that permitting 25% merchant sale from captive mines will ensure higher revenue earnings and bring them closer to par with coal blocks which will be auctioned for commercial mining.

Ministry officials said that with the government opening up commercial coal mining to private investors, ending the coal mining monopoly of the government under the Coal Nationalisation Act of 1974, there was little rationale for continuing to have captive mining and commercial mining as two separate operational entities, and the distinction would be blurred over time, with the enabling of free sales from captive mining blocks being a step towards such a goal.

The government is also considering changes to the existing bidding rules based on rupee per ton of coal to be shared with the government, which the government reckons would not be investor friendly, all the more so against a backdrop of coal falling out of favour with foreign investors and a shortage of institutional finance available to fund greenfield projects.

An upfront commitment to pay the government per ton of coal put pressure on working capital requirements and Ministry officials said that various other options were being considered, including an annualised revenue sharing, similar to the practice of oil and gas field auctions.

Currently, coal blocks for the power sector are allocated through reverse auction based on the premise that lower cost of bidders will be passed on to electricity consumers, while for the nonpower sector, coal blocks are allocated based on forward auction to maximise revenue earnings of the government.

However, the Coal Ministry is apprehensive that given the bearish sentiments in the global coal mining industry among investors, revenue maximisations of the government through auction may not ensure a high number of participants at the auction and hence the need to find an alternative model.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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