Mumbai : India’s decision on Tuesday to allow private companies to mine coal for commercial use, without pricing or end-use restrictions, may not spawn huge business opportunities for global mining giants Peabody Energy, BHP Billiton or Rio Tinto.
But when the move attracts foreign miners, it will put a lot more pressure on state-owned Coal India (CIL), and its subsidiaries, to improve the quality of coal they push in the domestic market.
The Union government’s move will see coal blocks being handed over to the highest bidder. The auction, a two-stage bidding process, will first call for technical bids. The entire process will be based on the amount a firm agrees to pay as auction fee per tonne of coal, Union Minister Piyush Goyal told reporters in New Delhi on Tuesday.
The government hopes the decision will improve coal-quality, cut imports of the fuel and boost energy security – coal accounts for over 75 per cent of the nation’s power generation. However, when the coal blocks are sold, to whom will the private companies (read miners) sell relatively higher-priced, low-quality coal to? Will power producers here, including NTPC, India’s largest power utility, be eager to pay more for better-quality fuel? They may not.
Generation costs are expected to go up by Rs 0.20 to 0.30 per kWh because utilities will have to cough-up money to meet revised emission standards, after New Delhi revised emission norms for thermal power plants in 2015.
But if things go as anticipated, power producers may not have to shell out more for better fuel as incoming competition will force CIL to improve the quality of coal it ships through the year. If CIL can get its act together, the firm’s stranglehold on supplies could see it outdo its competitors.
Furthermore, private players, especially foreign firms, will have to factor in forces impacting the coal sector, factors that pose a threat to returns on investments. Earlier in the month, a CIL report stated that the demand for coal in India, as a source of primary energy, ‘will expand until 2030 and perhaps beyond’, albeit at a lower CAGR of three per cent, compared to six per cent in the last five years.
The report also listed several external factors that could render coal-fired power uncompetitive.
