Plan underway to allow private companies to mine coal

17 APR, 2012, ET BUREAU
NEW DELHI: Under pressure from the PMO to increase coal production, Coal Secretary Alok Perti has convened a meeting between private coal mining companies and government-owned Coal India Ltd (CIL) to identify projects that could be outsourced to private coal miners.

Law ministry officials have also been invited to attend this meeting which will be held this week.

The meeting will deliberate on the legal framework under which private mining companies can enter the sector though the competitive bidding route. Mining is limited to government owned companies under the Coal Nationalisation Act though end-users such as power, steel and cement companies can mine for their own use.

A source in the PMO said that increasing coal production in the country has been identified as a top priority as the shortfall in the fuel has taken a toll on the growth story. "Possibilities of whether and how private mining companies could be roped in to help expand capacities and increase production had also been flagged at the inter-ministerial meetings held between January and March," the source said.

CIL, accounting for over 80% of India's coal production missed its revised production target as it produced only 435.84 million tonnes (MT) of coal in fiscal 2011-12 against the target of 447 MT. The shortfall has resulted in several power projects being starved of coal. The government has been exploring several options of bringing in new players into the coal mining area within the restrictions of the nationalization Act.

While corporatisation of some of the CIL subsidiaries was one option that is under consideration, the government is also exploring if the state-owned miner can outsource mining to private companies selected through competitive bidding.

There is already a model for this as CIL has outsourced two mines to Essel Mining, an A V Birla group company under a long-term contract as part of a pilot project.

Speaking to ET, former CIL chairman Partha Bhattacharjee said that these projects were awarded based on MDO (mining development and operations) agreements. Most large mining companies do this globally as it helps increase production and efficiency, he said.

The Planning Commission had written to coal minister Sri Prakash Jayaswal in March asking it to explore development of projects on a public private partnership (PPP) basis to expand operations and expedite coal production.

According to this model, bids are invited for a particular coal block that has to be mined . While the ownership of the block remains with CIL, the mine is given out on a long term agreement and the coal produced is bought back by CIL at a fixed price. The bids are ranked on the basis of cost per tonne and these have to be lower than the notified cost of CIL.