Coal India Limited (CIL) would slow down the development of new under-ground mines unless the price for coal extracted from these mines could compensate for the higher cost of production.

In a briefing before the Coal Ministry, CIL chairperson S Narsing Rao said the miner’s cost of production from underground mines had gone up by $14/ t to $16/t over the last year, and production had been falling at the rate of one-million tonnes a year, according to an official in the Ministry.

Rao impressed on the Ministry that it was imperative to increase production through existing and new underground mines, but noted that this could not be done unless CIL was able to charge a higher price for coal extracted from such mines.

He said that, with coal production costs from underground mines increasing to levels of around $54/t, the minimum internal rate of return of 12% on investments in underground mines could not be achieved unless CIL was able to charge a higher price for such production.

However, the Ministry was unsure of the feasibility of having a dual price for coal based on the mode of production and noted that such an issue would be left to the proposed independent coal regulatory authority, which has been approved by the government.

CIL’s reluctance to increase its underground mining footprint came as a damper to a recent Coal Ministry initiative to boost coal production through underground mining. The Ministry was in the process of setting up a committee of experts to draw up a long-term strategy on capital investments and technology upgrades to increase production from underground coal mines of CIL and Singareni Collieries Company Limited (SCCL).

Further, the Ministry was also framing an incentive package to boost underground mining, including differential rates of royalty on coal mined underground and investment-linked tax holidays. However, according to CIL, while indirect incentives could kick-start new projects, their long-term economic viability could only be ensured through a price regime that would support a healthy internal rate of return.

Of the 467 mines operated by CIL, 270 were underground, 160 opencast and 30 mixed mines. In 2012, CIL’s production from under-ground mines was only 37-million tonnes of a total production of 435.84-million tonnes.

Taking mines operated by SCCL and other smaller government-owned coal miners, total coal mined underground in 2012 was pegged at 51-million tonnes of total Indian coal produc-tion of about 557-million tonnes.