Commercial mining: Maiden coal auctions draw good response

Boosting the prospects of a sharp acceleration in India’s coal production and near elimination of the need for thermal coal imports in the medium term, the maiden auction under the commercial coal mining policy saw aggressive bidding by domestic and home grown firms on Monday. While five commercial coal blocks went under the hammer, the winning bidders offered to pay handsome amounts to the respective state governments as revenue share, up to 31% in two cases.

The largest mine offered — Radhikapur West in Odisha — was won by Vedanta, which agreed to a revenue share of 21%, while Aditya Birla Group’s Hindalco Industries bagged the Chakla blocks in Jharkhand, the second largest among the auctioned block by quoting a 14.25% revenue share.

Of course, the absence of global mining giants such as BHP Billiton, Rio Tinto and Glencore was conspicuous, but analyst noted this is seemingly because these companies are gradually withdrawing from the coal industry.

This would also be the first set of coal assets to be auctioned off through the new market-determined revenue share model that replaced the fixed fee/tonne regime that turned off private investors. These assets are unexplored ones, and the investors will enjoy certainty of tenure from the prospecting to the production stages.

The smaller blocks witnessed more intense bidding, with Yazdani International quoting the highest bid of a 30.75% revenue share for the Marki Mangli 2 mine in Maharashtra. For the Takli Jena Bellora block in Maharashtra, Arurobindo Realty quoted a 30.75% revenue share. JMS Mining’s bid of a 10.5% revenue share was the highest quote received for the Urtan block in Madhya Pradesh.

As many as 19 blocks will be auctioned in this batch of auctions, scheduled to end on November 9.

Other bidders who participated in Monday’s auction but did not win any coal block include Adani Enterprises, Jindal Steel and Power and Sunflag Iron and Steel Company. The government on June 18 had launched the maiden auction for commercial coal blocks, where the requirement of prior experience for prospective bidders had been done away with to attract investors.

The Centre initially estimated commercial coal mining to contribute about Rs 20,000 crore annually to states as revenue and potentially save Rs 30,000 crore per annum by substituting thermal coal imports. However, the actual benefits seem to be much lower as the estimates were based on output from 41 mines with an annual peak production capacity of about 225 million tonne (MT).

While three of the blocks were removed from the list following the objections from Maharashtra and Chhattisgarh state governments, the Union coal ministry had received bids for only 23 coal mines out of the 38 blocks offered. Four mines received only one bid each, rendering them unqualified to be put up for auctions.

Credit Suisse wrote: “We highlight that at a peak rated capacity of 51 mtpa (26% of the total 197 MT which were put up for auction), these (19 blocks) comprise only 5% of India’s coal demand.” The agency also noted that these mines would need to take various clearances (environmental, forest and land acquisition) before they start operations. “Our base case is that it would take new owners 4-5 years to start production, unless the government fast-tracks clearances.”

Analysts at CARE Ratings had earlier noted that “subdued economic activity and liquidity constraints may result in lower interest among the private players to invest in commercial mining rights”. It also noted that stricter environmental norms are being adopted world over and with that many companies are increasingly moving towards greener and cleaner fuels. “This may therefore fail to entice participation from foreign companies,” it added.