India is the fourth largest country in the world in terms of coal deposits, yet it is unable to produce an adequate quantity of coal to meet the requirements of the domestic industry. During 2019-20, Coal India Limited (CIL) produced 602.138 million tonnes (mt) of coal, while the all-India production stood at 729.1 mt (provisional). India imported 248.54 mt of coal last year and spent Rs 1,530 billion in foreign exchange. Unfortunately, the lack of optimal resource utilisation has led to a situation where large amounts of coal have to be imported. The launch of commercial coal mine auctions has thus been one of the most important recent measures taken by the government to bridge this gap between the demand and supply of coal in the country. In the previous fiscal year, the government allowed 100 per cent foreign direct investment in coal mining, enabling global miners to join the fray.
In a major recent development, the auction process for commercial coal mines began. Of the 38 blocks that were put on offer, technical bids were received for 23 mines from as many as 46 companies. An update on the progress of the commercial coal mine auctions process…
The auction was launched on June 18, 2020. The coal ministry released a list of 41 coal blocks to be auctioned for commercial mining, with geological reserves of 17 bt and a peak rated capacity of 225 mtpa. The included blocks whose allotments had been cancelled by the Supreme Court in 2014, as well as new blocks identified under the Mines and Minerals (Development and Regulation) Act, 1957 and the Coal Blocks Allocation Rules, 2017. The list was subsequently revised owing to apprehensions that certain blocks fell in ecologically sensitive zones. The blocks that were withdrawn included the Bander coal blocks in Maharashtra and five coal blocks in Chhattisgarh. The five blocks were replaced by three others.
Accordingly, the coal ministry launched the auction with a revised list of 38 coal blocks for commercial mining. The auctions are being conducted in two rounds – technical and financial. Due to a tepid initial response, the deadline for the first round (technical bid round) was extended to September 29 from August 18.
A total of 82 bids were received from 46 companies for 23 coal blocks at the close of the deadline on September 29, 2020. No bids were placed for 15 blocks despite the extension of the timeline.
In terms of player participation, while global mining majors gave the auctions a miss, domestic players such as Hindalco, Essel Mining, the Adani Group, Vedanta Limited, BALCO, Jindal Steel and Power Limited, and JSW Steel were reportedly among the 46 entities that put in bids.
Twenty of the blocks received two or more bids each. However, only 78 bids were valid for 21 of the 38 blocks. Only one technical bid each was received for Chendipada, Chendipada II, Kuraloi (A) North and Seregarha. No bids were received for Chitarpur, Choritand Tiliaya, Machhakata, Mahanadi, Marki Barka, North Dhadu, Shankarpur Bhatgaon II Extension, Sondhia, Thesgora-B/Rudrapuri, Brahmanbil and Kardabahal, Dolesara, Jarekela, Jharpalam-Tangarghat, Marwatola Sector VI and Sector VII, and Phuljhari (East and West). Hence, as per the tender documents dated June 18, 2020 and September 1, 2020, the tender process for these blocks was annulled.
The technical bids were opened for examination on September 30, 2020 and the process continued till October 16, 2020. However, additional clarifications were sought from the bidders, by October 19, 2020, in relation to the technical bids. This has delayed the schedule for evaluating the second round (the financial bids) and for the awards. The next round was originally scheduled to begin on October 19, 2020 through state-run MSTC’s e-auction platform and to close on November 11, 2020.
The way forward
Despite the apprehensions over the timing of the auctions owing to the Covid-19 pandemic, the government decided to go ahead with them. In fact, Jharkhand, which has large coal reserves, had filed a writ petition, challenging the centre’s decision to auction the mines. It had questioned the timing of the auction, saying that the scarce natural resources would not fetch proper prices because of the “negative global investment climate” during the pandemic.
These issues notwithstanding, it is hoped that the auction of the coal mines will help create a marketplace for coal with multiple producers, thus driving competition and bringing efficiency through the adoption of best practices in mining as well as in environment management. Also, the terms and conditions in the current tranche of the auction are quite liberal, say industry watchers, with mining leases being granted for 30 years, with the possibility of renewal for a further period. Bidders would be likely to commit to revenue share keeping long-term economic interest in mind. However, experts caution that while timely conclusion of the auction process is important, for commercial coal mining to take off, ease of doing business factors also need to improve simultaneously. These include land acquisition and statutory approvals, rail connectivity to pitheads, and evacuation infrastructure. Addressing these issues will allow domestic coal to be available in the market, addressing the demand currently being met by imported coal.