By MADHUMITA MOOKERJI

The Government of India recently announced an INR 20 lakh crore stimulus package that is aimed to act as a strong booster dose for the economy suffocating in the COVID-19-induced lockdown. In tranche IV of this package, the government notably brought in wide-ranging structural reforms across eight sectors that include coal, minerals, power distribution companies along with Defence production, airspace management, social infrastructure projects, space sectors and atomic energy.

Mineral Reforms

ln minerals, the government announced a composite exploration-cum-mining-cum-production regime under which 500 mining blocks will be offered through the open and transparent auction route through amendments to the Mines and Minerals (Development and Regulation) Act.

Transfer of mining leases will be allowed to ensure ease of doing business.

The introduction of such a seamless regime will bring many more mineral blocks into auction, it is understood. The blocks having the potential for mineral production will be auctioned for composite licences wherein the successful bidder will complete the exploration and start production seamlessly, the government said.

Importantly, the distinction between captive and non-captive mines will be removed to allow transfer of mining leases and sales of surplus unused mineral blocks. Amendments will be made in the MMDR Act to remove the distinction between captive and non-captive mines, it is learnt.

Commercial Mining

In coal, the government has introduced commercial mining of the mineral, which had been hanging fire for over two years. The move has been initiated with a view to reducing India’s imports of substitutable coal and increasing her self-reliance in productio­­­n of the same. Nearly 50 blocks will be auctioned. In fact, at a recent Chintan Shivir of coal, Union Minister of Coal and Mines Pralhad Joshi said that India will stop importing thermal coal from financial year 2023-24.

With the rollout of commercial mining, the government’s monopoly in coal production will be done away with and the revenue share model will allow for more coal availability at competitive market prices.

No blocks, henceforth, will be earmarked for captive mining, although one can do captive mining from the blocks acquired for commercial mining.

With the distinction between captive and commercial blocks gone, any private player can now bid for a coal block and sell the production in the open market. It­ may be recalled, previously, only captive consumers with end-use ownership could bid for the coal blocks. Around 50 coal blocks will be offered immediately, the finance minister informed.

Speaking to Steel360, V.K. Arora, Chief Mentor, KCT Group, said: “Auctions of 50 coal blocks for commercial mining had been in the pipeline since the beginning of the year as the government felt, with the increasing requirement for power, the country has to arrange increase in production of coal so that imports can be cut down.

Auctions of commercial coal blocks have been hogging the headlines ever since the finance minister made a statement, announcing the COVID-19 package that commercial coal mining shall be a game changer for the country.”

But, Arora warns that other than power companies and some cement companies, there seems to be no real enthusiasm because this perhaps is not the best time to invest one’s money.

However, this auction is different from the previous ones:

  • Coal can be sold anywhere (even exported) at market-driven prices.
  • Blocks are at least 80% explored.
  • Mines once acquired can be sold to another party.
  • Coal bed methane (CBM) in the property is a part of the concession.

“Normally approval from Central and state governments is always very tedious and time-consuming. This time, the government is promising to hold their hand to see that approvals are given within a certain time frame,” observed Arora.

The 50 blocks earmarked are to be auctioned this year and are part of the 214 blocks de-allocated earlier in 2015 by the Supreme Court. Out of these, 80 blocks have already been reallocated to PSUs and state governments. “Since these blocks were working earlier, it is expected that land and infrastructure should be available,” reasons Arora.

Another source sounded slightly cautious, saying while commercial mining is a step in the right direction, and addresses India’s coal production scenario on the ground, how early these coal blocks come to production, will prove its success in the future. All the 50 blocks have been earmarked. Around 80 blocks had been put on the website from January onwards, when the notification came in on the amendment in the MMDR Act. Out of those 80, the government, based on the industry’s suggestions, shortlisted 50 that will be put up for auctions. “From the industry side, there were mainly two considerations. One was how easily would the blocks come to production. Second was the proximity of the blocks to the plant location, especially for those players looking at the block for their own consumption,” said the source.

Arora added that those hoping to bid for these blocks have to have deep pockets as substantial amount is required for upfront payment, bid security and performance security.

Bidding will be on the basis of percentage share of revenue payable to the government. The floor price shall be 4% of the revenue share and this will keep going up in reverse auction.

“Hundred percent FDI is allowed but it is doubtful that foreign companies would like to chip in at this time as raising funds overseas for coal mining is very difficult. Hence, companies like Adani, Jindal Steel, Jindal Power, Vedanta, Aditya Birla Group may actively bid for these blocks,” Arora indicated.

With a view to enhancing and encouraging private investment in the mineral sector, Finance Minister Nirmala Sitharaman said the government is bringing about rationalisation of stamp duty, which is payable at the time of award of mining leases.

An investment of INR 50,000 crore is to be made in infrastructure development for evacuation of Coal India’s (CIL’s) enhanced target of 1 billion tonnes of production by 2023-24 as well as coal production from private blocks.

A source observed that CIL will have an edge in terms of size and approach and its infrastructure compared to the commercial miners. CIL’s coal blocks are old, good in terms of reserves, accessibility and have been operating for a long time and so they have considerable logistics infrastructure already in place which the commercial players will find difficult to match, at least in the initial few years. CIL can, of course, also bid for these 50 blocks.

Auction Route Needs Further Study

However, Dr Aruna Sharma, Development Economist and former Secretary, Ministry of Steel, GoI, said package IV needs to be examined when details come to the forefront. “It is a good beginning but needs lots of detailing,”she averred. She told Steel360 that the package for metals and minerals is a long-term one and all the details need to be read carefully.

“The government’s credibility is to be demonstrated by consistency in policy, converging different rules and regulations to intended goals and quick inter-ministerial decision-making process. The package announced is bringing into the forefront the framework being executed on commercial coal mining since August 2019. One has to await the details. However, mention about the revenue sharing model has to be carefully examined so as to prevent confusion in future. The adjusted gross revenue (AGR) has to be clearly defined in the revenue sharing model for coal and bauxite, so that these do not end up in a mess like telecom.”

She emphasised: “The auction will have to be examined as the previous attempt did not attract domestic or foreign players to bid for the same. In fact, many of the FDIs were withdrawn in the coal mining sector. Removing of captive mines unused as that of Orissa Mineral Development Corporation (OMDC) and again putting them up for auction is welcome. However, many of the pre-allocated mines could not be put into operation due to delay in different clearances required. Thus, there cannot be sweeping policy. The old commitments of mines allocated and valid till 2030 need to be honoured by examining if the unused mine has been due to delay of clearances or if the case is like OMDC’s.”

Dr Sharma also said the auction route needs to be examined, if only single bid or no bid comes, as the department/ministry is not able to decide due to fear of vigilance, enquiries and past experiences of harassment. Thus, the need is to bring in clarity and have option of clearing on single bid/or allocating if the objective is to use the coal reserves in India and reduce imports.

Coal Gasification & CBM

The government will also provide incentives to convert coal into gas in order to meet environmental needs. Coal bed methane (CBM) extraction will also be done through auctions, the government said. Coal gasification and liquefaction will be incentivised through rebates in revenue sharing, the minister said, adding that CBM production would also be encouraged.

Welcoming the reforms, Naveen Jindal, Chairman, Jindal Steel & Power (JSPL), said: “We whole-heartedly welcome the announcements… Incentivising coal gasification is something that we have been requesting for a long time. Last year, Prime Minister Narendra Modi, too had stressed on its importance. This will definitely help steel makers in producing steel using swadeshi coal, truly leading to AtmaNirbhar Bharat Abhiyan. This will also boost the economy and encourage clean coal technologies that use coal in an environment-friendly manner.”

Noting that India has the third-largest reserves of coal in the world, the JSPL chief further said that the gasification technology can help India overcome “the perennial shortage of oil, gas, methanol, ammonia and urea”.

JSPL is already using the technology at its Angul plant in Odisha. It is India’s first and only plant producing steel from swadeshi coal using the coal gasification technology, Naveen Jindal added.

Speaking on the new coal gasification norms, Dr Sharma said, “Coal gasification had been hit when the court cancelled all the mines, thus, the role of the judiciary also needs to be defined. The joint committee of the Ministry of Environment, Mines and related end-user ministry like steel should resolve issues emerging, if any. The loss to the exchequer because of these sweeping judgments is now proven. The Kudremukh mines and that of Goa also need resolution under the new approach in the package.”

Coal & Bauxite

A joint auction of bauxite and coal mineral blocks will be introduced to enhance the aluminum industry’s competitiveness. “Bauxite and cheap power source are the basic requirement for the aluminium industry. In order to ensure ready availability of these two resources, joint auction of bauxite and coal will be enabled,” the government said.

Dr Sharma feels that combining bauxite and coal is welcome if there is proposition for more aluminium plants in the private sector besides the major player Vedanta. However, she rued that there is no mention about other minerals like copper/gold or minor minerals like sand etc that generate local employment.

Aggressive bidding in the long run will result in cornering of mines by few end-users, resulting in extraction limited to requirement of production as has been witnessed in the case of iron ore.

Arora observed, “The government has announced that a large number of mineral blocks in iron ore, bauxite, ferro alloys would also be put up for auction to enable companies to bid for mineral deposits. In fact, there shall be a combination of bauxite and coal blocks for which bids shall be invited. This may be of interest to companies proposing to set up aluminium projects.”

Power

Power distribution companies in Union Territories are to be privatised in line with the new tariff policies. This will enable industries to be strengthened and bring in efficiency in the entire power sector and also enable its stability, announced the finance minister.

An industry source observed that the entire value chain from mining to power distribution has been kept in mind while formulating the reforms agenda. “Earlier, many independent power producers (IPPs) came up but the distribution sector was not addressed which led to severe problems in terms of discom NPAs,” the source observed.

In fact, many feel that commercial mining should make coal production efficient. And if power distribution is also made efficient then the entire value chain will become stronger.

But Arora voiced the fears of many when he said that coal is going to be used mostly for power. At a time when most of the power companies are sick with balance sheets in the red, they have to marshal resources to take calculated risks in a venture which has a lot of uncertainty.