India’s cabinet to consider coal block auction plan

The ministry held talks with the industry recently on the proposed auction, according to a senior government official. Several big names involved in the discussions included steelmakers Tata Steel, ThyssenKrupp and JSW, mining equipment maker Caterpillar, aluminium producer Hindalco, cement-focused group Birla, infrastructure and power conglomerate GMR, as well as Adani Power and Jindal Steel and Power.

The industry executives aired their concerns. These included lingering transportation and infrastructure problems, which would hamper the evacuation of coal from the proposed mines that will go under the hammer. There are still limited rail lines and roads connecting India's mining area to the market. Other concerns they expressed included a lack of clarity over a proposed national coal index for the evaluation of coal blocks.

The executives want the ministry to facilitate the granting of "pre-embedded" environment and forest clearances to the coal blocks. And they asked the ministry to review its proposed 4pc minimum revenue sharing clause in the bidding process, the government official said.

The ministry explained its position, saying it would hold the industry's hands wherever necessary to help boost local production and cut imports, the government official added. The ministry also explained to the industry its in-principle decision to keep an import component in the broader national coal index that will be used for valuation of the coal blocks.

The government's proposed index comprises the notified price of coal produced by Coal India (CIL), the value of coal sold via electronic auction and the landed cost of imported coal. The industry, in turn, wants CIL's notified price to be the sole constituent of the index, fearing import and e-auction components will raise the valuation cost of the coal blocks.

A lack of consensus around the index has been a key reason behind the delay in the auctioning of the coal blocks. The auctions were initially meant to be held by the end of December 2019, prompting the ministry to further tighten its reform agenda that aims to boost domestic coal output and reduce imports.

"The ministry thinks it is pertinent to keep an import component in the index to capture the realities of the coal market," the official said, adding that the proposal for the cabinet is being finalised.

The official added that the ministry aims to issue the final list of coal blocks for the first auction round by the first half of March. It had initially identified as many as 40 coal blocks, with an estimated production capacity of 150mn t/yr for the first phase, aiming to meet rising domestic demand and slash imports.

Indian thermal coal imports grew by 14.4mn t in 2019 to 185.5mn t. But the rate of growth slowed compared with 2018. Imported coal partly compensated for a shortfall in domestic supply as state-controlled producer CIL, which meets more than 80pc of India's coal needs, reported its first drop in years in annual supplies to power plants last year.

By Saurabh Chaturvedi