Covid-19 dents India’s coal reform plans

The plan — which should include details of the coal blocks to go under the hammer in the first auction round and the mechanism to price the mines — has yet to be sent to the federal cabinet for approval by the coal ministry, a senior government official said.

The ministry was initially aiming to seek approval for the plan last month but the outbreak altered government priorities as the country went into a 21-day lockdown.

The delay also comes as state-controlled Coal India‘s (CIL) largest producing subsidiary South Eastern Coalfields ordered 83 employees into quarantine after some of them attended a religious gathering on 3 April along with an infected person. Some of the underground mining operations in the country are already shut.

The virus outbreak and the 25 March-14 April lockdown has shaken the coal market as it triggered force majeure declarations by a string of ports, consumers and traders even as prime minister Narendra Modi prods government departments to ensure business continuity during the lockdown.

The planned reforms are crucial for India's broader plans to raise domestic production and slash imports and come at a time when CIL reported its first drop in output in around two decades in the 2019-20 financial year that ended 31 March. The Indian parliament paved the way for the reform as it approved amendments to archaic mining laws well before the coronavirus-related lockdown.

Record stockpiles

The lockdown has also led to a slump in coal demand as power stations operate at lower capacities, leading to record stockpiles at CIL power stations and pitheads. Traders are cautious about the near-term demand outlook for imported coal in India, particularly as there is still uncertainty as to whether India will extend the lockdown beyond 14 April.

The initial auction plans involved domestic and international roadshows to attract investor interest in the proposed bidding. The outbreak and current global travel restrictions would also weigh on plans to conduct a roadshow.

The planned auction had been delayed by a lack of consensus around the proposed National Coal India Index, a key for valuing the price of the blocks. The auctions were initially meant to be held by the end of December 2019. After that became impossible, the government had hoped to launch tender documents by March 2020.

The government's proposed index comprises the notified price of coal produced by CIL, the value of coal sold via electronic auction and the landed cost of imported coal. But the industry wanted CIL's notified price to be the sole constituent of the index, fearing import and e-auction components would raise the valuation cost of the coal blocks.

The ministry had initially identified as many as 40 coal blocks, with an estimated production capacity of 150mn t/yr for the first phase of the auction.

The slowdown comes against a backdrop of strong recent Indian coal imports, which rose for a fourth consecutive month in February, shipbroker Interocean said.

By Saurabh Chaturvedi