Captive Coal Mining in a Flux

1. Captive Coal Mining in a Flux One of the key comments in this year’s Economic Survey was regarding aggressive bidding in the coal block auctions. “In the case of spectrum, coal and renewables, auctions may have led to a winner’s curse, whereby firms overbid for assets, leading to adverse consequences in each of the sectors,” it stated.

2. Among the most crucial events in the timeline of India’s coal industry was the cancellation of captive coal mining blocks by the Supreme Court in 2014. What followed was a swift policy action plan to overhaul the allocation policy framework by introducing a competitive e-auction method whereby end consumers were required to bid for coal blocks. Since December 2014, five rounds of auctions have been announced, with 30-odd blocks (of the 204 cancelled blocks) being auctioned so far.

3. While this was meant to resolve the prevailing challenges and boost output, the segment today faces significant pressure, as the survey points out. The players’ exuberance led them to bid aggressively for blocks, which have today become unviable. The government’s decision to disallow pass-through of the quoted discount price after the bidding was over came as another major setback. The fallout is that the winning bidders are now surrendering their assets or struggling to bring their coal mines into operation. The latest news on power is that Essar Power has submitted a request for surrendering its Jharkhand mine in January 2018.

4. Further, production, which was expected to increase from the reallocated blocks, has failed to ramp up. There has been a distinct lack of interest from bidders in the subsequent rounds of auctions; in fact, the last two rounds had to be cancelled owing to tepid response from the industry. The macro scenario has also changed significantly since then, with domestic supply being ramped up and international coal prices crashing, making it cheaper to source coal from overseas. Moreover, power demand by discoms fell, which meant that coal-based plants sat on idle capacity, drastically reducing their coal requirements.

5. There is also not much clarity on the future bidding rounds. In fact, a recent draft report by consultancy firm KPMG, titled “Coal Vision 2030”, forecasts that no new mines will be required beyond those already allocated or already auctioned off. While the captive coal mining industry is in a flux, the government has recently given its approval for auctioning commercial coal blocks to private players (see box). The move has brought cheer to the industry, as this would break the monopoly of Coal India Limited (CIL) and usher in the much-needed competition in the sector, which has been nationalised since 1973. Read more – https://powerline.net.in/2018/02/09/in-a-flux/