Financing commercial coal mining: Banks to look into multiple factors

Financing the auctioned coal blocks could be critical because bank finances would be available only after the blocks start operations, SBI Caps executive vice-president Mukul Modi said.

Mine viability, associated cash flows and terms of payment in a supply contract would also be looked for financing coal mining projects, he added.

Banks would look into factors like demand, prices and transport arrangements on which depended cash flows. Customers to whom supplies would be made and the contracts entered into would also matter as also the historical behaviour of the spot markets and down the line the prospects of the coal exchange, Modi said.

In a lease period of 30 years, it will take an average five years for the 19 blocks, which were taken with premium ranging between 9.5% and 66.5%, to become operational.

The expenses required to be incurred in developing the mines will be high as only land acquisition would cost at least Rs 1 crore a hectare. Thereafter, delay in approvals and subsequent penalties for delay in operation would be detrimental to returns on investment down the line, making operations commercially unviable, RP Ritolia, adviser, Swayambhu Natural Resources, said, adding that only 19 out of 36 blocks could be auctioned since most players couldn’t see the viability factor into it.

With 50% of the auctioned blocks being captive and Coal India producing 1 billion tonne by 2024, the demand-supply situation could pose a hurdle to commercial miners for marketing, Ritolia added.

Since 2015, CIL has been producing more than demand and pushing coal to existing consumers has come up as a challenge, SN Tiwary, CIL’s director (marketing) said.

Besides these factors, land acquisition is already a hurdle. Discrepancies in data, lack of standard relief and rehabilitation policy and unidentified land for mandatory afforestation are coming in the way of faster mine development, Himanshu Singh, director, coal – group commercial, Vedanta, said.

Deemed approval for various clearances required, specially for the environment and forest clearance, could be a solution to make mines quickly operational with states alloting land from their land bank for compulsory afforestation. The Centre should come with a standard R&R policy, Singh added.

Mjunction MD and CEO Vinay Verma said 65% of the block winners are not mining players.