Commercial Coal Mine Auction in India : Success Prospects

 -         Rajesh Deoliya

[rajeshdeoliya@gmail.com]


The coal is a major fuel source to generate energy and is simultaneously major source of pollution. From extraction to end use at every step it contribute to environmental degradation. However, it is indispensable, it is catalyst in economical progress. Though alternative source of energy are also evolving but they are still far behind to become a reliable source and replace coal permanently. To meet the demand of coal in country, Government of India has dropped the limiting clauses in coal mining and supply of coal to the Thermal Power Plants. The commercial coal mining is now seen as major reform in the coal mining sector.

1. Commercial Coal mining:

By  amendment in section 11A of Mines and Minerals (Development and Regulation) Act,1957 on 13th March,2020;  the government allowed prospecting licence-cum-mining lease in respect of coal or lignite to carry on coal or lignite reconnaissance or prospecting or mining operations, for own consumption, sale or for any other purpose as may be determined by the Central Government. Earlier the coal mining leases were prospected by the government agencies and were put for auction from a list of coal blocks which were cancelled by Supreme Court. Some of these coal blocks were fully explored and others were partially explored.  These blocks were auctioned for certain end use utilization only viz generation of  power, production of Iron and Steel, Cement.

Similar amendments were also made in section 4 of the Coal Mines (Special Provisions) Act, 2015  viz .."to carry on coal reconnaissance or prospecting or mining operations, for own consumption, sale or for any other purpose as may be determined by the Central Government, and the State Government shall grant such reconnaissance permit, prospecting licence, mining lease or prospecting licence-cum-mining lease in respect of Schedule I coal mine to such company as selected through auction by competitive bidding under this section."

2. Removal of Coal Ash Content Clause for Thermal Power Plant (TPP):

To ease the restrictions of uses of coal, ministry of Environment, Forest and Climate Change also eased out the conditions related with the transportation of coal and Ash Content for use in TPPs. The Gazette Notification dated 21st May,2020 replaced the GSR dated 2nd January,2014 which mandated coal based thermal power plants to use raw or blended or beneficiated coal with ash content not exceeding thirty-four percent (34%). The use of such high ash content of coal was to stopped by TPPs  located in urban areas and beyond 1000 kms from coal mine from 2nd June 2014 and by 5th June,2016 by those TPPs located beyond 500 kms from coal mines. The new notification dated 21st May,2020 allowed use of coal having plus 34 percent ash content, if user TPP has technology which can control pollution emission within the Central Pollution Control Board guidelines.

 

The above two amendments have opened the doors for wider participation of bidders and also gave wide scope of business to entrepreneurs to set up coal based projects or to sale the coal in open market. Though, India produced about 729 million tonne of coal in year 2019-20.(source: https://coal.nic.in/ content/ production-and-supplies), but it imported about 208 million tonne of coal in year 2017-18 ( source: Energy Statistics, 2019, Ministry of Statistics and Programmed Implementation, Govt of India) which included coking and non coking coal. Hence, there is strong need of augmenting domestic coal production to reduce coal import. It is expected that the commercial coal mining will help in bridging the gap of demand and supply of coal.

3. Types of coal mines for auction:

The Ministry of Coal, Government of India has notified 41 coal mines for auction for commercial mining. These coal mines are situated in the states of Chhattisgarh, Odisha, Jharkhand, Madhya Pradesh and Maharashtra. The coal in these offered mine blocks belong to non-coking coal (37 mines), non-coking and coking coal mix (2 mines) and coking coal (2 mines).  If bidding is successful for all the coal blocks then cumulatively they will produce 224 million tonne per annum coal of various type. If this happens it will be huge saving on imported coal. These  coal mine blocks contain 13848 million tonnes of coal reserves of various grade, mainly low grade coal which Is suitable for power generation.

4. Hurdles in Successful Bidding:

It is  envisaged that several factors can create hurdle in success of bidding of coal blocks some of these are elaborated here:

i. Large quantity of coal reserves in single coal mine block:

Since eligibility conditions, upfront payments are linked with the estimated resources the large quantity of coal resources in a coal mine may not be attractive for bidders. Prior to cancellation, many of listed blocks were allocated to more than one bidder. For example Fatehpur (East ) block having coal reserves of  297 million tonnes was allocated to JLD Yavatmal Energy Ltd., R.K.M. Powergen Pvt. Ltd.,Visa Power Ltd., Green Infrastructure Pvt. Ltd.,Vandana Vidyut Ltd and the Gondulpara coal block having coal reserves 923 million tonne was allocated to Jharkhand Ispat Pvt Ltd,  Electrosteel, Adhunik Alloy and Power Ltd. In this way the coal reserves were thought to be properly utilized.

In  the current bidding programme also blocks like Kuraloi –A - north (1680 million tonne), Machhakata ( 1400 million tonne),Machhakata_Mahanadi (1993 million tonne) have  huge reserves which are difficult to mine on commercial basis without setting up own end use plant so as to extract entire reserves within the lease period. This will invite large investment therefore restricting the little participation or will find no bidder.

ii. Large area of coal mine block:

Mining is blamed for land degradation, changing surface topography, deforestation, and displacement. Hence, small size of mines are always preferred. A perusal of 41 coal mine blocks indicate that 2 mine blocks have more than 30 sq km area ( maximum being 33.77 sq km), 6 mine blocks have area between 20 to 30 sq km, 8 mine blocks have area between 10 to 20 sq km, 14 mine blocks have area between 5 to 10 sq km and 11 mine blocks have area less than 5 sq km. These areas have large population of Adivasi, economically backward classes mainly dependent on agriculture and forest produce. The large scale displacement of these project affected persons is bottleneck in execution of project activities.

iii.Problems in Land Acquisition:

Land acquisition is always major problem in project execution, it becomes more severe when project benefits to the society are little. The mining projects contribute more towards economic development when they are associated with captive plants. The resentments of local communities is visible in coal and Iron ore mining belts. The land acquisition cost for these mine blocks is going to be such huge that it is a negative factor. Considering 20 sq km area for land acquisition ( i.e 2000 hectare  or 4942 acre)  at INR 15 lakh per acre will cost to INR 741 crore. Such investment coupled with the statutory payments to government in the form of upfront amount ranging from INR 100 Crore to 500 crore, depending upon the coal resources in the mine block and payments of NPV for conversion of forest land to non-forest land makes the coal block unattractive. A bidder has to consider risk of such large investment and return on it. The mine block land are not appreciated as mine degrade the land and create void.

iv. Resettlement and Rehabilitation issues:

Since, the mine blocks has villages and other types of habitations implementation of R&R plan is a big challenge. As the communities, where these blocks are situated are extremely poor, devoid of education to understand the use of land acquisition payments. There is fear that the R & R will affect the traditional livings of the schedule tribe communities. If community concerns are not addressed in the R&R then it is extremely difficult for the successful bidder to work smoothly. This may result in delay of project and invite penalties.

5.The Peak Rated Capacity of coal mine in mine plan:

Since many coal mines have huge coal reserves the annual production of coal extraction has to be kept high to completely mine the coal reserves in the mining lease period. For a commercial mine it will require good marketing network and smart pricing to compete with the e_auction of coal price, failing which the production of coal will be less than targeted and may invite penalties and the project may become unviable.

6.The increase of investment in alternative energy:

Since coal as fuel is becoming unpopular due to its nature of generating pollution in every level of operation from mine to end use plant. There is growing demand to slowly discontinue the use of coal as fuel. Instead alternate sources like solar power is getting momentum and available at cheaper rate. In long  run the growth of alternative energy sources may be disadvantage for coal miners. Hence, this factor has to be considered a business risk factor in bidding.

The issues like environmental clearance, forest clearance, diversion of river, canal, road etc. are also there but they are not discussed here as they are common issues with all projects.

7.The potential coal blocks:

A perusal of 41 coal blocks on the basis of ease in land acquisition, area of coal block, coal reserves, grade of coal, availability of large non- forest areas, depth of coal seams it appears that 14 coal blocks can be matter of attraction to bidders viz.

1) Gare Palma IV/1, Chhattisgarh

2) Gare Palma IV/7, Chhattisgarh

3) Shankarpur- Bhatgaon, Chhattisgarh

4) Radhikapur – East, Odisha

5) Radhikapur – West,Odisha

6) Rajhara north central, Jharkhand

7) Saregarha, Jharkhand

8) Urma Paharitola, Jharkhand

9) Chakla,Jharkhand

10) Sahapur –East, Madhya Pradesh

11) Sahapur-West, Madhya Pradesh

12) Utran,Madhya Pradesh

13) Bandha coal mine blocks, Madhya Pradesh

14) Bandar, Maharashtra

 

 

It is interesting to know that some of these were held by industries like Jindal Steel and Power, Rungta Mines, Tata Sponge, Raipur Alloys, Electrosteel etc.

Though the auction for coal mines for commercial use is being done for first time, the experiences gained from this will pave way for future auctions.

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Comments

Ayush Tiwari said…
Very clearly put all points, local issues and land acquisition are most important factor

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