The Indian federal government is working on a proposal under which state-owned Coal India Ltd. (CIL) would engage private sector companies to undertake mining on behalf of the coal miner, reports Business Standard.
A PTI report published in the newspaper says that the government move is a result of criticism for its inability to meet the growing demand for coal. Citing unnamed sources, the report says that the proposal to involve the private sector under the public-private partnership (PPP) mode was recently discussed between top level government officials.
Reports suggest that India’s Coal Secretary Alok Perti recently convened a meeting between private coal mining companies and CIL to identify projects that could be outsourced to private coal miners. The meeting will discuss all the details on the proposed model, including the legal framework under which private mining companies can enter the sector through the competitive bidding route.
The Planning Commission had earlier written to Indian Coal Minister Prakash Jayaswal in March, asking his ministry to explore development of projects on a PPP basis to expand coal production.
How Coal Bidding Works
Media reports suggest that according to the proposed 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 metric ton and these have to be lower than the notified cost of CIL.
CIL has already outsourced two mines under the same model as part of a pilot project to Essel Mining, an AV Birla Group company, under a long-term contract. The federal government and CIL are under pressure to enhance coal production and fulfill the demand by domestic power producers, steel mills and cement manufacturers, fertilizer and chemical industries.
Coal is the primary raw material for thermal power generation in India. Coal accounts for more than half of the country’s power generation. It is also the main fuel for steel mills and cement makers and many other industries. In addition to industrial demand, coal is still a basic fuel to make food for many Indians in rural parts of country.
Coal Monster Growing
Indian power demand is on the rise. Currently, India has a power generation capacity of 170,000 MW and expects to add 62,374 MW by 2012. The Indian federal government also has plans to set up 16 Ultra Mega Power Projects (UMPPs), each with a minimum generating capacity of 4000 MW.
But CIL remains unable to supply enough coal as demanded by the various industries — especially the power sector.
It may be recalled that domestic power producers and steel manufacturers frequently import coal to fill their requirements. Many Indian companies have also acquired overseas coal blocks for the fuel supply. Experts believe that the country’s need for coal imports could jump nearly 70 percent next fiscal year to 142 million metric tons.
As per the Planning Commission, domestic coal demand will increase to 1 billion tons by the end of the 12th Five-Year Plan (2012-17), necessitating about 200 million tons of imports to bridge the shortfall in domestic output. The commission has also estimated that domestic production will rise to 770 million tons by 2017 on the basis of projected annual growth of around 7 percent in output.
India’s federal government has admitted that there was a wide gap between availability and commitments made by the company to various consumers.
Continued in Part Two.