KOLKATA (miningweekly.com) – Although the opening up of India’s coal sector has been put on the slow track, the West Bengal government is nonetheless seeking the federal government’s approval for commercial mining from a coal block allocated to it – the largest single site reserve in Asia.

The West Bengal government was allocated the Deocha-Pachami coal block, with estimated reserves of more than two-billion tons of high-grade low ash content coal, for captive mining to feed State-owned thermal power plants. However, as the potential production volume is set to outstrip demand from thermal power plants, the West Bengal government is now seeking approval to develop the asset, enabling commercial mining and free merchant sale of coal.

Officials say that commercial mining and free sale of coal from the block will ensure that the state government fetches higher realisations and projected cash flow from merchant sale. It will also bolster the government’s ability to raise funds from financial institutions required to develop such a large project.

“Given the size of the reserves, only a small volume of coal produced from the block will be required for captive use. When mining starts we can have commercial mining as well, if the quantum of coal raised is higher than the quantity demanded by power companies,” state Finance Minister Amit Mitra said.

“Part of the production from the block will be first used to feed thermal power projects at Sagardihi, Santaldih, Bakreswar and Durgapur Power, all plants operated by the state government,” he said.

As reported by Mining Weekly Online previously, with the Indian government unable to push through coal sector reforms and usher in commercial coal mining by private miners with no end-use restriction, the Coal Ministry as a middle path, permitted captive coal miners free sale of coal to the extent of 25% of production from the block.

However, in the case of Deocha-Pachami, the West Bengal government feels that if the block is to be developed optimally, total production will far outstrip the 25% sale that has now been permitted by the Coal Ministry.

The Ministry for all practical purposes, has put commercial mining on the backburner and will not be pushing for immediate auction of new coal blocks for bidding by private miners. Although not officially acknowledged, officials privately conceded that opposition from workers in government coal companies against commercial mining could snowball into a political issue ahead of national elections, scheduled for next year.

Officials say that the West Bengal government seeking approval for commercial mining and free sale of production from Deocha-Pachami block is in a "policy grey area" as there is no specific window wherein a coal block allocated for captive production could get converted into a commercial project, as the asset has not be allocated through the mandatory auction route.