Companies raise concerns on commercial mining rules, financing troubles

Leading mining, power, and metals companies raised several concerns in the upcoming auction of coal mines for commercial purpose at a meeting with the coal ministry. In the stakeholders’ consultation held in Mumbai on Wednesday, several sector majors said seeking financing for commercial mining would be a major issue. “Investors told the coal ministry officials it would be difficult to get finance for bid security and upfront amount,” said an executive, who was part of the meeting. The upfront amount to be paid by the mine developer would be 0.5 per cent of the value of estimated resources of the coal mine. Whereas, bank guarantee would be 20 per cent of the upfront amount in case of fully explored mine and 25 per cent in case of partially explored one.  

The Ministry of Coal has released a probable list of 84 mines, which will be offered for auction. They have geological reserves of 22,360 million tonnes (mt). There are close to 10 mines with reserves of more than 500 mt. More the reserve, higher is the upfront and bid security amount.

Among the participants at the meeting were Tata Power, JSW Energy, Reliance Power, KSK Energy, Jindal Steel and Power, ACC, Ambuja Cement, Prism Cement, Hindalco, etc, said sources. Some state government-owned companies also participated in the meeting. 

Private companies asked the coal ministry to provide a level playing field and efficient environment for getting clearances. “Private-sector companies sought a level playing field with regards to getting clearances, infrastructure for evacuation of coal and allied logistics, clarity on goods and services tax-related issues to encourage them to participate in the bidding process,” said an executive. 

Addressing the industry, the coal ministry officials said there will be incentives for early/excess coal production. “There will be no restrictions on the utilisation of coal,” said the official at the meeting. 

Participating companies, however, pointed out the issue of delay in getting clearances, which hampered the last round of coal auctions. In 2019, around 25 coal blocks were earmarked for auction, but the bidding did not happen due to lack of interest from the industry.

Several players highlighted there is no benchmark as yet for pricing the coal to be sold from these mines. The official said revenue-sharing and royalty payments to coal-mine-bearing states “will be on notional basis”. The price of coal would be calculated based on the National Coal Index. The index is yet to be finalised.

Earlier this month, the Bharatiya Janata Party government at the Centre eased the qualification criteria and regulations for mining and selling coal in the country, thereby further easing the entry of foreign players and non-coal dependent companies in the coal mining sector. 

The central government promulgated an Ordinance in Coal Mines (Special Provisions) (CMSP) Act, 2015, and the Mines and Minerals (Development and Regulation) Act, 1957, to introduce changes to the auction of coal blocks and their end-use relaxations.

Companies till now could participate in the bidding for coal blocks only if they had iron and steel, power, cement and coal gasification, and coal-to-liquid projects. The new set of amendments will also introduce more sellers of coal to India, which is currently only in the hands of state-owned Coal India. The Centre has also relaxed coal usage norms. Current private coal blocks owners would also be able to sell surplus coal in the open market.

The announcement comes four years after the Centre enabled commercial mining and sale of coal by private companies under the CMSP Act, 2015. A year later, it approved the methodology for auctioning coal mines for commercial purposes to private companies. In 2019, around 25 blocks were earmarked for auction, but the bidding did not happen.