Parliament´s recent approval of the Coal Mines Special Provision Bill 2015 has given the Indian mining sector a boost and paved the way for private players in commercial mining. A major consumer of coal, the power sector will drive the demand for coal for the power deficit in the country. However, it seems that while allocating coal blocks, the government should also streamline land and environment clearances, besides developing proper transport network to facilitate coal linkages.
The Indian coal sector has been in the spotlight for all the wrong reasons, ever since 214 coal blocks were cancelled due to ´illegal, arbitrary and non-transparent allocation´ to allottees last year. Consequently, the uncertainty surrounding these coal blocks pushed miners into a dilemma and threw the mining and power segments out of gear. However, by passing the crucial Coal Mines Special Provision Bill 2015 in Parliament, the National Democratic Alliance (NDA) government has given the industry a breather. Apart from this, reallocation of 28 coal blocks through e-auction proved to be a significant step in the government´s endeavour towards addressing policy gaps.
Meanwhile, auction of more coal blocks is also in the pipeline and the Indian Government has ambitious plans to scale up coal production in the country upto 1.5 billion tonne (BnT) per annum by 2020. From this, the government expects one BT from Coal India Ltd (CIL), 500 million tonne (MnT) from private compa¡nies, and another 500 MnT from companies like NTPC.
According to industry experts, these positive developments will give the coal mining sector a much-needed fillip and catapult it to growth by ultimately generating lucrative opportunities for miners, the mining equipment segment and of course, the power sector, which depends on coal for its fuel supplies.
The 12th Five Year Plan has projected a spike in demand for coal upto 980 MnT by 2016-17 and 1,373 MnT by 2021-22, while the supply of domestic coal is expected to be 795 MnT by 2016-17 and 1,102 MnT by 2021-22. In order to reduce the gap between demand and supply and curb imports, Indian coal miners are required to ramp up indigenous coal production.
Furthermore, by allowing private coal mining companies to sell coal in the open market, the Bill has paved the way for commercial coal mining as the government had earlier only allocated mines for private consumption to private miners.
While talking about these steps, which he hails as a ´turning point´ for the coal mining sector, Anil Swarup, Coal Secretary, GoI emphasises, ´It will be a game changer in the sense that it will provide a platform for transparent mechanism for auctions of coal blocks. These blocks were earlier allocated in such a manner that the Supreme Court and other agencies had raised concerns, leading to their cancellation.´
Umesh Agrawal, Associate Director, Energy, Utilities and Mining, PwC, opines that by giving scope for opening of the sector to private players, the Bill will bring in private expertise in the sector through material mining or even through the block route. ´Transparent and competitive bidding of coal blocks will ensure that the value it contains in terms of resources remains intact. Optimum allocation of resources may happen this way,´ adds he. The industry players are optimistic about the passage of this Bill and are looking forward to it as a driving force for the industry.
Terming the development ´good´, Dipankar Banerjee, Chief Operating Officer - Mining Business, Tractors India Private Limited (TIL) says, ´The Bill will ensure optimum utilisation of coal resources in India. It will facilitate auction of coal blocks for private companies for captive use and allocation of mines to states and central Public Sector Undertakings (PSUs). Further, it has outlined the provision of rehabilitation and compensation measures for displaced people. It also provides for vesting of the right, title and interest over the land and mine infrastructure together with the mining leases to the successful bidders.´
Meanwhile, raising concerns about the implementation of the Bill in its totality, Jayaram S Kousik, Vice President - Geotechnical & Mining Division, Maheshwari Mining, enunciates that it will prove a game changer, provided the government implements it in proper earnest.
´Definitely, the Coal Mines Bill will make a difference to the mining sector. In the past, we have witnessed passage of many bills. However, my main concern is about its proper implementation. There is a huge hype that the government will earn Rs Two lakh crore through the auction of coal blocks. But, the government will get revenues only when the miner will be able to execute operations without any impediments,´ he adds.
Dimitrov Krishnan, Vice President, Sales & Marketing, Volvo CE India says, ´It will help if a much required industrial framework for the sector is set up. In the aftermath of cancellation of coal blocks, the Government has asked all PSUs to increase production. So, initial benefit is that PSUs have taken specific steps to augment their production.´
´From October, the sector has witnessed increased outsourcing activity from PSUs. The benefit is that in the next three to five years period, the exploitation of non-resources will reach its peak. So, I believe that the passage of this bill will be a game changer for the mining sector, especifically coal. The ambitious target of providing uninterrupted power supply across the country will drive the coal sector,´ he points out.
Expressing faith in the government´s progressive step, Debasish Mishra, Senior Director, Deloitte, says,´ The government will come out with bidding for commercial mining. It will attract global mining companies having expertise, leading to investments in India.´
The government´s ambitious plan of doubling thermal power generation to two trillion units by 2019 and the overall coal production to 1.5 BnT will be a huge shot in the arm for the country´s power sector. As of April 2014, installed thermal capacity in India stands at 168.4 GW. The power sector generates nearly 60 per cent of its total power capacity of two lakh MW through coal.
As coal feeds more than two-thirds of power plants for electricity generation, industry players feel that the Bill´s approval will not only facilitate coal supply to thermal power plants, but also help fulfil the Centre´s dream of ´Power for All´.
A hopeful Agrawal from PwC says, ´Approval of the Bill will prioritise power players who are either running or about to complete projects, in order to improve the coal availability at cheaper and more competitive rates.´
While, Mishra from Deloitte mentions that this ´good´ measure will generate alternate sources of supply for the power sector, reducing their dependence on CIL. ´Now, many power plant developers will have their own mines for fuel supply as the government will offer more mines through this captive route,´ he observes. While emphasizing on the urgent need for commencing mining operations in the ´ready-to-start´ blocks, Banerjee from TIL notes that a majority of captive coal blocks are held by the power sector. Moving ahead, down-stream investments in power plants have already been committed in most of the cases.
´Apart from generating job opportunities, it will create a boom in the power sector, thus leading to enhanced electricity generation,´ says Kousik from Maheshwari Mining. The power sector has recently garnered headlines for news of over Rs Three lakh crore ´stalled´ projects, leading to non-performing assets (NPAs) and stress on financial institutions (FIs) that lend to these projects. One of the reasons for these stuck projects is the non-availability of coal.
With respect to the power sector, RN Choubey, Special Secretary, Ministry of Power, during a recent meeting with top public sector banks, has said that 18,000 to 19,000 MW of coal-based power projects still need feedstock. Going ahead, experts hope that the investments riding on these projects will unlock as coal production picks up. Concurring with this, Agrawal from PwC enunciates that once coal supply to power plants improves, the plants will start generation, and unlock investments in the sector. Reiterating this thought, Mishra adds, ´Creating alternate sources of fuel supply will definitely unlock power projects that are stuck due to lack of fuel supply.´ Commenting on the enormous opportunities for the sector, Kousik says, ´It will be a big boost for the power, steel and cement sectors, and will especially create a boom in the power sector, besides providing employment opportunities.´
Calling the Government´s plan of doubling of CIL´s coal output as ´a huge leap´, Krishnan adds, ´The notified coal blocks will come on stream and start producing coal for feeding power plants. To utilise this coal, the sector needs to set up enough power plants, and in case of huge distance between locations it also needs set up proper linkages for evacuation of coal.
Despite having huge reserves of 301.56 BnT coal, India has to depend on costly imports. In order to ramp up indigenous production of coal, the government has chalked out a detailed mine-wise plan for one BnT augmentation of CIL´s production by 2020. As per a senior Coal Ministry official, the government will identify issues like environment clearances, land acquisition, modernization and technological up-gradation requirement, and human resource management; and resolution of all these issue will improve the production efficiency of the national coal behemoth. In order to bring efficiency in mining operations, state-of-the-art equipment will be required to reach the ambitious target of 1.5 BnT by 2020. This will consequently drive the expected growth of the mining equipment industry.
While gearing up for an increased share in the market size of the equipment industry, Banerjee notes that the industry´s equipment management side has undergone a sea change in deployment of technical advancement. ´Today, Information and Communication Technology (ICT) is deployed extensively across all mines in the world to enhance safety, and increase efficiency and equipment productivity. We foresee more intelligent equipment being brought to India in the next few years,´ he adds.
Equipments like dumpers, dozers, shovels, draglines, and excavators which are used for opencast mining are manufactured at par with international standards in the country. According to him, underground mining operations will provide further scope for modernization of mines in India through deployment of Room and Pillar, and Long Wall technology. Coal India has already taken steps to introduce this technology in underground operations to enhance its productivity.
Taking note of the surge in demand for mining equipment since the last few months, Krishnan from Volvo avers, ´Technology plays a major role in cost optimization. The mining equipment market is also experiencing a foray of mid to large size equipments, which depending on the size of the project, will provide a lot of opportunities for various types of technology for different levels of mining projects. Demand for large hydraulic excavators (> 40 T), wheel loaders, dump trucks and motor graders is expected to increase.´
According to Kousik, till date, a large amount of coal mining has been executed in open pit. But in the next 10-15 years, there won´t be enough area to mine open pit, which would raise a need for miners to excavate deep into the underground. Underground mining will drive a demand for high-end technology like long wall continuous miner systems and for that, we will have to go with the latest technology equipment and methodologies.
Coal blocks allocated through e-auction are expected to start production in the next 6 to 12 months. Exploring this opportunity, Ramesh Palagiri, Managing Director and CEO, Wirtgen says, ´Heavy mining equipment will be useful in achieving the ambitious production of 1.5 BnT. For this, we offer our biggest surface miner - the SM 4200, which has integrated operations like drilling, blasting and loading in single machine and production capacity of 10-12 MnT per annum. It also increases production while reducing operating costs.´
Resolution of issues
Industry players feel that the passage of the Bill and plans of raising coal output are right steps for the prosperous growth of the sector. However, the coal mining sector has its own challenges like delay in land acquisition, environment clearance, and lack of proper transport network for evacuation of coal from mines. Apart from this, mining operations also take a long gestation period. These have caused the share of mining in India´s Gross Domestic Product (GDP) to fall from 1.2 per cent to one per cent, over the last decade, whereas in developed mining markets like Australia and China, it contributes three-four per cent. It is thus imperative to clear all litigations and hurdles that need to be addressed during allocation of blocks to allottees.
Commenting on the hurdles, Mishra feels, ´Due to stagnation for many years, CIL has been able to scale its output by only seven per cent this year. But, if it overcomes all these challenges, it can reach the output of one BnT by 2020.´ Elaborating on the challenges mining players are facing, Kousik adds, ´The sector has also been suffering from delays in securing environment clearances and delay in land acquisition among others. If these requisite clearances are not in place, then simply winning a coal block will be of no use.´
´I think, while allocating a coal block to an allottee, the government should take care of everything by making provisions for a single point clearance. Getting clearances from six different places is a time consuming and cumbersome task,´ he further adds. Talking about the steps to make mining operations hassle-free, Banerjee states that it is need of the hour to sort out problems like land acquisition in order to achieve the goal of coal output from large captive blocks.
Kousik emphatically adds that streamlining these issues is necessary. In the current scenario, lack of requisite clearances has taken a toll on mining operations, leading to closure of mines. If this continues, investors will shy away from funding these projects.
The Centre is on path to bring non-congenial policies and reforms in order to elevate India´s image by improving the ease of doing business. Going further, Mishra concludes that the sector requires a regulator for conservation of resources in the coal sector, protection of the interest of consumers and producers of coal, and monitoring of quality, quantity, safety, and planning aspects of its operations.
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