After more than a five-year wait, the government may finally throw open the doors of the regulated coal sector for commercial mining by the private sector Indian and overseas miners post-Diwali.
Government sources said that draft rules, bid documents and agreements for commercial mining has been prepared and it would be finalised by the first week of November with auctions starting soon thereafter in the first week of December.
The decision would permit domestic mining firms like Essel Mining, Sesa Goa and global giants like Rio Tinto, BHP Billiton, PesBody, Glencore and Vale to mine and sell and help ramp up output from the country's huge reserves -- the world's fifth-biggest. It will also offer an additional source of fuel for power producers, some of whom are facing low coal stocks at their plants.
However, the success of the first bidding round for commercial mines would have to be weighed against lack of investor interest in the recent coal auctions for end-user plants. Companies shied away from bidding for 27 coal mine put up for auctions in the recent eighth, ninth and tenth rounds of bids turning the exercise into a damp squib. Only six blocks out of 27 received adequate bids to go under the hammer.
"It is a tough time to get investment commitment from investors even for commercial mining. However, the location of mines and quality and reserve of coal could change investment decisions," said a coal ministry official, adding that size of coal blocks Inder commercial mining route would be substantially large.
The commercial mining auctions could see in all 15 large coal blocks with an annual production potential of 5-10 million tonnes being put up for bidding in phases. The reserves in five of these mines could be in excess of 500 million tonnes. These could fetch anywhere between Rs 5,000 and 6,000 crores to the state government.
If the pilot auctions are successful all future blocks could be considered to be offered for commercial mining with permission even for captive use by end-use plants.
As of now, power, steel and cement companies can mine coal but for their own consumption after getting blocks through auction. State-owned Coal India (CIL) dominates commercial mining in India.
The commercial mine auction will offer coal blocks without end-use restrictions to the private sector with permission to sell their output to consumers in steel, power and cement sectors on commercial terms.
Enabling provisions for commercial mining was made in the Coal Mines (Special Provisions) Act, 2015 for allocation of mines by way of auction and allotment for sale, but sluggish market conditions and unavailability of blocks of requisite size prevented auction under this route for the past three years. In February 2018, the government also laid out the guidelines for commercial coal mining.
The methodology for auction is expected to ask bidders to submit upfront payment and bank guarantees. While the government will not regulate price, marketing or sale of coal, minimum production from the commercial coal mines will be specified. Bank guarantees will be linked to the production schedule. Overseas companies bidding for mines would have to get themselves register in India.
Sources said the price of coal to be sold by new entrants in mining may be determined on the basis of a formula that would fix prices by taking a mean of the weighted average price of global benchmarks as well as prevailing Coal India prices. It would be akin to the gas sector where prices are not market-determined but fixed by the government based on global indices.
Commercial coal miners would also not have the freedom to export coal in the initial years. The government wants to take its coal block auction to a logical conclusion with the aim of boosting production. A coal production target of 1.6 billion tonnes by 2020 has been fixed. It has factored in 200 mt productions from commercial miners other than CIL.
Opening of the coal sector is a long-overdue reform initiative that successive governments failed to take forward due to strong opposition from CIL unions.