Outsourcing mining for better yield

COAL IMPORT DEPENDENCY PART:II

The vicious spiral of approvals has stymied even good intentioned companies from starting production in allocated captive mines. The time gap between mine allocation and production has therefore gone way beyond the acceptable 3-5 years.

While the coal ministry says nine captive blocks have begun active production, the Planning Commission says the number is lower, and the output is marginal "" just about 14 million tonnes.

Nevertheless, the government is focussing on augmenting supply of captive blocks. It has decided to take away 41 blocks from an unhappy Coal India, worth about 6 billion tonnes of reserves, and put them up for captive mining. In addition, another 40 "new" blocks with reserves of 15 billion tonnes are being added to the overall captive mining list of 148.

Private sector companies will also gain entry into the mines of state-owned companies (the best ones in the country are reserved for them) through outsourcing contracts. Not only will this yield faster production, it will also cost 30-60 per cent less "" an impressive outsourcing dividend.

While official data will show how these companies are grandly meeting targets, they are bloated (almost 550,000 employees) and suffer from the typical public sector "culture".

According to a KPMG report, output per miner per annum in India varies from 150 to 2,650 tonnes, compared with an average of 12,000 tonnes in the US and Australia. Mining costs are at least 35 per cent higher than those of the main coal exporting countries such as Australia, Indonesia and South Africa.

"To increase supply, we need big players... larger players in this sector," says M Satyamurty, joint advisor (coal) in the Planning Commission.

For outsourcing contracts, large blocks have been carved out to attract leading names in the business (think Rio Tinto, BHP Billiton). While global bids are being floated for a few blocks, the initial response has been less than enthusiastic.

"Large-scale investments will not be forthcoming where information is not dependable and incomplete and where there is no transparency in tariff determination," says KPMG's Hiranyava Bhadra who closely tracks the coal sector. "There is an information risk, procedural risk and a tariff risk," he adds.

While an emergency coal production plan works on squeezing more from existing projects, government companies "" like state mineral development corporations or state power generation companies "" have been roped in to mine an additional 28 blocks.

"I think by 2011, we can balance the gap between demand and supply," says Minister of State for Coal Dasari Narayana Rao.

Somehow, those who agree with that position seem to be in a minority.