Author Archives: Sohrab Darabshaw

The Indian steel industry is witnessing some interesting times — and not in the sense of the Chinese curse.

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After a hiatus, domestic demand is up. On the other hand, the sector is seeing consolidation as international and domestic steel players spar over assets of bankrupt Indian steel companies.

Much of the action of late has been around Essar Steel, the country’s fourth-largest steelmaker, which is on the block after filing for bankruptcy last year.

A buyer is expected to be announced within the next few weeks, gaining control over 10 million tons in annual production capacity, equal to one-tenth of India’s crude steel output in 2017.

Yet, hurdles remain.

A joint bid for Essar by ArcelorMittal and Nippon Steel & Sumitomo Metal is among the top contenders. The Luxembourg-based ArcelorMittal’s first bid was held ineligible due to its joint venture with a debt-ridden Indian company. But Arcelor has moved away and reentered the race with the Japanese player, Nippon.

There has already been two rounds of bidding, and now there are reports of a third due to legal reasons. Earlier, a court had ordered the Essar Steel’s Committee of Creditors (CoC) creditors to reconsider bids from ArcelorMittal and a Russian-led consortium, sidelining a rival offer from London-listed Vedanta. The second round was scrapped by the National Company Law Tribunal (NCLT) last Friday after it hauled up the lenders and the Resolution Professional for not doing a thorough job in handling the bidding process.

Reports in the Indian media now say the CoC could be looking at inviting fresh bids for the stressed asset, paving the way for JSW Steel, Vedanta, Tata Steel, ArcelorMittal and Numetal to make another attempt to acquire it.

The lenders have sought legal opinion on calling for fresh bids. A final decision will be made later this week, as not all bankers favor going through the process again, the Economic Times reported.

While all eyes have been on this action, many have missed this development. India’s steel production rose to 86.7 million tons in the nine months to December 2017 from 73.96 million tons in the year-ago period, according to steel ministry data.

As per an earlier forecast, India’s domestic steel demand was expected to increase by 5.5% in 2018 and 6% in 2019, making it the fastest-growing market for steel among the top 10 largest steel markets by volume.

All this activity is been monitored closely by the Government of India (GoI), which has announced its own initiatives to propel the sector. A senior official told news agency Press Trust of India (PTI) that the GoI would roll out a red carpet to the big guns internationally who want to set up greenfield steel projects.

Steel Secretary Aruna Sharma said the sector provides huge growth potential against the backdrop of the country becoming the world’s second-largest alloy producer with increasing consumption.

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Foreign players like Posco, ArcelorMittal and Thyssenkrupp already have presence in the country.

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India and the United States may be at loggerheads over the recently announced trade tariffs on the import of metals, but that has not stopped the two nations from talking cooperation in other fields like oil and gas or renewable energy.

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On Tuesday, U.S. Secretary of Energy Rick Perry and the Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan co-chaired the inaugural meeting of the U.S.-India Strategic Energy Partnership in New Delhi. This was a meeting following up on the announcement of the tie-up by U.S. President Donald Trump and Indian Prime Minister Narendra Modi in June 2017, in Washington, D.C.

The two countries will jointly look at ways to increase energy security; expand energy and innovation linkages across respective energy sectors; bolster strategic alignment; and facilitate increased industry and stakeholder engagement in the energy sector, the government said in a statement.

The Indian minister was quoted by the news agency Press Trust of India (PTI) as saying that the U.S. and India will pursue four primary pillars of cooperation: oil and gas; power and energy efficiency; renewable energy and sustainable growth; and coal.

A joint statement issued after the meeting reaffirmed the commitment by both sides to an early and full implementation of their civil nuclear partnership, including the planned supply of six Westinghouse reactors for the proposed nuclear power station in the Indian province of Andhra Pradesh. The cooperation in nuclear energy is being pursued through relevant bilateral mechanisms, the Times of India reported.

According to the PTI report, Perry indicated that recognizing the significance of civilian nuclear energy for meeting the growing global energy demands in a cleaner and more efficient manner, India and the U.S. were engaged in the implementation of the 2008 agreement for cooperation concerning peaceful uses of nuclear energy. Read more

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India found itself on the back foot in the first meeting of trade representatives from India and the United States in the Indian capital, New Delhi, last week. It was held to discuss the latest U.S. trade tariffs on steel and other metal imports.

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According to reports, while the Indian delegation did speak of the “harsh” tariff on aluminum, the U.S. team kept bringing up the need to have “a greater balance in bi-lateral trade,” which experts claim, was currently in India’s favor. The U.S. team was led by Assistant U.S. Trade Representative Mark Linscott.

A report in the Financial Express said the U.S. side also delved at length into India’s intellectual property regime, and sought a relaxation in its provisions on ever-greening of patents, which has been a longstanding demand of the U.S.

If the Indian trade delegation had thought that it would have an upper hand in the discussions, it did not seem so. The U.S. counterparts sought a better trade balance with India through greater access to American products, and the removal of restrictions on the pricing of medical equipment like bioresorbable stents.

The Indian side reiterated its demand that the U.S. should roll back the increase in import tariffs on steel and aluminum, announced last month, where India was concerned. The U.S. had imposed a 25% levy on steel and 10% on aluminum on a handful of countries, including India and China.

The Linscott team remained noncommittal to this request, according to reports, except for saying the sentiments would be conveyed to Washington.

Under the Generalised System of Preference (GSP) program, select developing countries are allowed to export specified products duty-free to the U.S. India has often been at the top of this list. Exports of select items in the textiles, engineering, gems and jewelry, and chemical sectors are allowed duty-free access to the U.S.

The GSP between the two nations expired recently, and now it’s seen as the U.S. wanting to link it to the trade balance. India has conveyed that this would not be a prudent step for trade between the two countries.

This first in a series of trade meetings will culminate in the trade policy forum meeting to be held later this year.

India’s imports from the U.S. in the April-February FY 2018 period were valued at U.S. $23.34 billion, which was 14.68% higher than imports in the comparable period of the previous fiscal. The country’s exports to the US during the period was at $43.32 billion, 13.34% higher.

Earlier in the month, Alice Wells, principal deputy assistant secretary for South and Central Asian affairs, told The Hindu newspaper that while America’s average tariff was a little over 3%, India’s was over 13%, and that this disparity was the source of the friction.

While India goes about trying to get some relief from the high tariff, it faces another salvo from another side on the same subject, this time from the European Commission (EC).

The latter had initiated “safeguard investigation” on steel products to ascertain whether import tariffs imposed by the U.S. need to be countered to prevent Asian producers from flooding the European market. Analysts claimed this would have a significant bearing on India’s steel exports.

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The investigation, the notice for which was issued recently, will cover India as well, though it is targeted primarily at the U.S. India is estimated to have shipped around 3.0-3.5 million tons of steel to Europe so far this fiscal year. The EC investigation was initiated on a suo moto basis, and covers about 130 items in all grades of steel.

Unlike China, its neighbor India is not right now thinking on the lines of imposing retaliatory tariffs on U.S. products.

However, the Indian government has requested the U.S. to exempt it from the hefty tariffs on steel and aluminum imports.

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This was revealed by a minister in the Lower House of the Indian Parliament in a written reply to a question. Following the announcement by U.S. President Donald Trump in late March of increasing the tariffs on imports, the Indian government had also conducted a study on the impact on Indian goods and steel industry.

MetalMiner reported that the move by the U.S. government may not impact India the way it will China.

India exports around U.S. $1.5 billion of these products to America.

India said it was willing to sit with the U.S. and solve the issue bilaterally.

The U.S. president signed two proclamations that levied a 25% tariff on steel and 10% tariff on aluminum imported from all countries, except neighboring Canada and Mexico (since then, others have gained exemptions).

A news report in the business newspaper Mint has said India will seek to convince the U.S. to exempt it from these duty hikes at a bilateral meeting during a visit by Assistant U.S. Trade Representative (USTR) Mark Limscott to New Delhi next week.

The meeting scheduled for April 10, in preparation of a trade policy forum dialogue for the year’s end, will be the first opportunity for the Indian side to put across its case for an exemption.

The news report quoted an unnamed commerce ministry official as saying the U.S.’s decision to impose tariffs on the grounds of national security, and then grant exemptions to allies, was against World Trade Organization (WTO) rules.

India does not want to “retaliate” like China against the U.S., as the latter was considered to be a “valuable strategic partner.”

China recently hiked tariffs by up to 25% on 128 US products, from frozen pork and wine to certain fruits and nuts, escalating a trade dispute between the two nations.

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India is the world’s 14th-largest steel exporter, and sold iron and steel worth $320 million and aluminum worth $350 million to the U.S. in 2016-17. The U.S. ranked seventh as a destination for Indian steel, accounting for 5% of exports.

Late last year, India’s National Aluminium Company (Nalco) had talked of striking up a joint venture (JV) in India with two companies – Canadian firm Almex and Rusal of Russia.

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This week, according to a news report, Nalco has firmed up plans to set up the JV with Almex for the production of automotive-grade aluminum. The multimillion-dollar project, according to the report in Business Standard, is expected to come up at the downstream aluminum park at Angul in Odisha Province, near Nalco’s aluminum smelting unit over 50 acres of land.

Almex reportedly has responded to the expression of interest by Nalco. The JV will produce auto-grade aluminum, and also of special alloys that find applications in aerospace. At present, this high-grade aluminum is not manufactured in the country. Nalco will have the majority equity in the JV.

In India, aluminum makes its way into about 300 applications, compared with over 3,000 applications worldwide.

The second JV expected with Rusal, too, is expected to manufacture special-grade aluminum to be used in metro trains, electric vehicles, aerospace and automobile sector, according to Nalco Chairman and Managing Director T.K. Chand.

When ready, the JV between Nalco and Almex will have an annual production capacity of 60,000 tons. Nalco has already committed supply of 50,000 tons a year of molten aluminum to downstream companies that chose to install their units at the park. Almex specializes in the production of aerospace-grade aluminum, while Rusal is a big player in primary aluminum, aluminum alloys, foil and alumina.

Propelled by profits, Nalco has been working on expanding its aluminum, alumina and power capacities.

The company earlier announced it planned to achieve a target of over 1 million tons of production capacity by 2020. In order to reach this goal, the company was implementing several new major capital expenditures.

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The Odisha aluminum park has already bagged one overseas investment from Bahrain-based Midal Cables.

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India’s trying to do an OPEC in solar energy, screamed some headlines in Indian newspapers after the founding ceremony of the International Solar Alliance (ISA) was held here recently, witnessed by Indian Prime Minister Narendra Modi and French President Emmanuel Macron.

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It was during former French President Francois Hollande’s visit to India in January 2016 that Hollande and Modi laid the foundation stone for the ISA headquarters in Gurugram district in northern India, adjacent to the National Institute of Solar Energy (NISE).

For the uninitiated, the ISA is a treaty-based alliance of over 120 countries, most of them being “sunshine countries,” which lie either completely or partly between the Tropic of Cancer and the Tropic of Capricorn. Its primary objective is to work for efficient exploitation of solar energy to reduce dependence on fossil fuels.

In addition to land, India has also contributed U.S. $27 million to build the ISA campus and has committed to meeting the operational expenditure of this body for the first five years.

Now comes the news that the French government will be committing €700 million in investment to this alliance.

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The Indian metal industry seems divided for now over the implications of U.S. President Donald Trump’s announcement of the intention to impose tariffs on steel and aluminum imports.

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News reports and statements by industry leaders, along with reports by research agencies, show no unanimity on how the decision by the U.S. government, if implemented, would affect trade in India aand other neighboring Asian countries.

A report by news agency Press Trust of India (PTI), quoting industry leaders, said India will not be impacted much.

President Trump said last week he had decided to impose a steep 25% import tariff on steel.

Quoting H Shivram Krishnan, Essar Steel commercial director, the PTI report said the U.S. decision was not compliant with World Trade Organization (WTO) regulations. Former Steel Authority of India Ltd (SAIL) chairman Sushil Kumar Roongta said that the move may impact some of India’s steel exports to the U.S.

On the other hand, Sanak Mishra, former managing director of SAIL’s Rourkela Steel Plant, told PTI the decision may not have a significant impact on India as of its total steel imports, U.S. imports only 2% from India.

Some experts in India believe if the U.S. President went ahead with his decision, it would spark off a retaliatory war between exporting nations and the US, disrupting the just-about-recovering global steel industry.

On the official front, the Indian government, without naming the U.S., has let it be known that it may not exactly be a wise move. In a nuanced statement, Indian trade envoy J S Deepak said the government shared the concerns that some members had expressed on recent developments that could lead to new tariff barriers and even a trade war.

The envoy added that application of tariffs must respect the ceiling of bound rates agreed to at the WTO.

Several countries, including the European Union, China and Japan, to name a few, have criticized President Trump’s announcement.

India has also cautioned about the threats posed by the U.S. to the WTO’s dispute settlement functions because of the continued delay in selection and appointment of members to fill vacancies in the Appellate Body, the highest limb for adjudicating global trade disputes.

The U.S. is India’s largest export destination with U.S. $42.21 billion worth of shipments sent in 2016-17. But India’s steel and aluminum exports to the U.S. remain low. While steel exports to the U.S. stood at only U.S. $330 million, export of finished steel products were U.S. $1.23 billion in 2016-17. Total exports of aluminum and aluminum products stood at $350 million.

But a report in the Business Standard said India may have to brace itself for more imports from China into India as a result of the U.S. action.

On the other hand, ratings agency Moody’s said in a report that Asia, which produced more than two-thirds of the world’s steel, would “be minimally affected” when compared to the rest of America’s trading partners. Asian exports of aluminum and steel to the U.S. typically amount to less than 1% of GDP or exports, Moody’s reported.

Moody’s said the direct impact on steel companies would be manageable for the steel sector and rated steelmakers in Asia, because steel is predominantly traded within the region.

The CEO of Japanese giant Nippon Steel, the world’s second-largest steel producer by volume, has already dubbed Trump’s decision “regrettable.”

The one area likely to be affected if Trump goes ahead is metallic scrap imports. The U.S.’s imposition of import tariff on primary metals, including steel and aluminum, was likely to hit India’s 10 million tons (MT) of metallic scrap import annually, according to this news report. The U.S. makes up 20% of this import.

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More use of scrap as raw material for metal producers in the Unites States will result into its lower availability for importers across the world. This means scrap price would move up outside the U.S., which would impact secondary metal producers into India, according to Sanjay Mehta of Material Recycling Association of India.

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It seems all too familiar — one step ahead, two steps back.

The cancelation by India’s top court, the Supreme Court, of all iron ore mining permits in Goa, one of the country’s top producing provinces for this raw material, has led to concerns being raised in industry and and economic circles of the country (not to mention protests by miners like Vedanta).

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Mining in the state of Goa, which, along with tourism, is one of the major sources of revenue and people’s livelihood, will stop after March 15, 2018. The local government will then have to issue new licenses.

Under the new set of rules laid out by the order, ownership is back to the local government; now it will have to auction the leases, as required by the law.

Some agree with the court ruling that held the local government responsible for not following due process in renewing the 88 mining leases for 20 years with retrospective effect from 2007. The prime minister’s office has also sought a report from the government of Goa on the impact of the court ruling.

Incidentally, the Anil Agarwal-run Vedanta Resources is one of the biggest iron ore miners in the state.

Other than Vedanta, this latest Supreme Court ruling will affect other miners, too, many of them local.

It may be recalled that similar judicial action was initiated in 2012 when illegal mining in Goa was ordered shut down. In the year before the ban, Goa had exported about 50 million tons (MT) of iron ore, but the Supreme Court later limited production in the state to 20 MT a year (most of which gets exported to China).

Now comes a report by an international agency that India no longer featured among the “most attractive regions” for investment in the mining sector, probably as a possible fallout of the mining ban. The Vancouver-based Fraser Institute’s annual survey of mining companies ranked India in the bottom 10 countries, at 97 of 104, in the investment attractiveness index in 2016, but now had dropped it from the list of 91 countries in 2017.

A report in the Hindu BusinessLine said the mining ban in Goa would expectedly have a far-reaching impact, not only on the state, but also on India’s image as an investment destination, going by the report by the Canadian public policy think tank report.

Vedanta, for example, expected to produce around 5.5 MT of iron ore from Goa this fiscal year ending March 31. Next year is a question mark — for now.

Expectedly, Vedanta is not happy with the latest development. Agarwal told news agency PTI that the Supreme Court’s decision would “hamper India’s economic growth as raw material for making steel will have to be imported,  resulting in jobs being created outside the country rather than within.”

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Mining is a capital-intensive business — although it has potential, analysts in India are of the view that not many companies would want to put in money in lieu of such an uncertain business environment.

The restrictions put in time and again by the legislative and judiciary on the mining industry in the form of caps on iron mining in Goa and other states (such as Karnataka), and high export duties, were sending out “negative messages” to the world. While FY17 witnessed the highest inflow of Foreign Direct Investments (FDI) — amounting to U.S. $43,478 million — into India, the mining sector could attract only U.S. $56 million. What was also needed to boost the mining sector was not only the required permissions, but also high-end technology and equipment to increase extraction and productivity.

All of that requires FDI, but with so much uncertainty, the question is: who will want to invest in India’s mining story?

Steel is the buzzword in India these days.

In addition to increased uptake, the revival in the steel cycle has also led to an unlikely output – many steel majors are now showing renewed interest in acquiring stressed Indian steel assets that have been put on the block for loan default.

Now, Indian steel is seeing an uptick in sales after almost a decade.

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The renewed interest in steel plants that are in a financial mess and have been put up for suitors is logical, analysts say, since most are going for approximately U.S. $600 per ton, while the rate to set up a new steel plant is almost about U.S. $800 per ton. Not to mention that buying an already up and running steel company means no hassles of taking government and other permissions.

What adds icing to the cake is many of these stressed assets are on the block for nothing else than the fact that most were set up at high costs, and other operational reasons.

Foremost in the race is Tata Steel Ltd., with its highest bid for the insolvent Bhushan Steel Ltd. and Bhushan Power & Steel Ltd. The former has offered to pay up to about U.S. $ 7 billion (Rs 45,000 crore) for Bhushan Steel and about U.S. $3.7 billion (Rs 24,500 crore) for Bhushan Power. Others are Numetal Mauritius, a company having VTB Bank as a majority shareholder and the Ruias as a minority partner, and ArcelorMittal for the stressed Essar Steel. Tata’s last major acquisition was the U.S. $13.5-billion Corus deal in 2007.

Tata Steel currently has 13 million tons per annum (MTPA) capacity; if it managed to grab the two Bhusan plants, it could add about 8.0 MTPA.

Bhushan Steel was sent for debt resolution by its lenders after the company failed to repay its dues worth about U.S. $8.62 billion (Rs 560 billion) under the Insolvency and Bankruptcy Code 2016.

But according to a report in The Hindu Businessline, there is now one hiccup in Tata’s path.

Bhushan’s lenders have invited the U.K.-based Liberty House to also submit its bid for the assets, well after the deadline, which was Feb. 8 this year. Only JSW Steel and Tata Steel had submitted bids by the deadline.

Quoting a Liberty House spokesman, the report said it had been invited by the lenders to bid for both the Bhushan assets, and would be doing so within a fortnight.

When asked why the company had failed to bid before the deadline, the spokesperson said Liberty House had been finalizing its India strategy.

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In mid-February, ArcelorMittal India Pvt Ltd (AMIPL) submitted its offer for Essar Steel, which includes a detailed investment plan to address the operational issues in Essar’s existing asset base. The company has expressed confidence that with its industry expertise and “renowned operating prowess,” it was best equipped to implement a successful turnaround, which would be beneficial to Essar’s stakeholders.

India’s coal story is something that we at Metal Miner have tracked over the years. It’s no secret that of late, the world’s largest coal producer, Coal India Limited (CIL), has been facing some measure of criticism for not being able to meet certain targets.

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Now comes a document drawn up by the monolith itself which says CIL was “trailing global peers” in operating performance and technology adoption, while taxes & freight constitute 25% and 34%, respectively, of the cost consumers pay, undermining the monopoly’s competitiveness.

The document, titled “Vision 2030,” is quick to add that the cost structure of the Indian coal sector is still favorable and that cost of production is a concern for only about 10% of the output, according to the Economic Times.

CIL has pointed out that for coal transported over a distance up to 100 km, it received only 56% of the costs paid by consumers for procuring dry fuel. Taxes, duties and levies were about 34%, followed by freight at 10%. For transporting coal up to 500 km, Coal India received 41% of the total payments made by consumers while taxes, duties and levies constituted 25%, followed by railways at 34%.

CIL feels that although it produces coal at competitive rates, its own operating process was letting it down.

The report says there is a “significant gap” in productivity norms of similar class of equipment in mines in India and those around the world. For instance, similar class of shovels in international mines is operated 40-50% more hours annually than at CIL.

Coming at a time when the state-run miner reported a 4.21% increase in its consolidated net profit for the quarter ending December 2017, beating street expectations, “Vision 2030” seems like a wonderfully self-deprecating piece of writing and self-actualization.

Production during the quarter stood at 152.04 MT, up from 147.73 MT in the same period the previous year. The one thing that seems to have worked in its favor was earnings from e-auctions, although fuel supply agreement (FSA) realizations were a drag.

This is all very fine, but the vexed problem of not enough coal reaching many of India’s power plants remains.

An assurance by Indian Coal and Railways Minister Piyush Goyal that the thermal power plants’ demand for coal will be met by adequate supplies in the next financial year is supposed to suffice for now. The Power Ministry has demanded 615 MT of coal and 288 rakes for thermal power plants in the next financial year. As of February 11, there were 52 thermal units that had less than seven days of coal stocks, according to data from the Central Electricity Authority.

The minister’s optimism stems from the fact that they would receive speedier environmental clearances for expanding coal mines in India. The Union Government is said to be tackling low coal stocks in over 50 power plants in the country.

To be fair to CIL, the recent emergence of renewable energy as a viable key substitute, and the promises made under the Paris Agreement have eaten into its revenue. Imported coal as a viable substitute is another challenge the company faces. Incidentally, one of the stipulated aims of CIL’s Vision 2030 was to assess the future demand scenario for the coal sector in India up to 2030.

While talking about emergence of renewable energy as a key substitute for coal, the study specifically delves into the massive growth of the Indian solar sector in last two years.

The total capacity addition in solar over the last two years has been more than 8 GW, an increase of approximately 200% in the installed capacity. “Efficient use of materials, improved manufacturing process, improvement in cell efficiency, and decrease in prices of solar inverters and other ancillary parts in the electrical system are expected to continue driving the competitiveness of solar,” the study noted.

The study estimates that the regulatory framework for access and extraction of coal will continue getting stricter, leading to increases in the cost of compliance. In 2015, India migrated to auction as a mechanism for allocation of coal resources for extraction.

About 50% of CIL’s total production comes from 15 opencast mines with a total production of 279 MTPA (million tons per annum). Remaining 452 CIL mines produce only 274 MTPA, or approximately 0.60 MTPA per mine.

India’s coal sector is regulated at several levels with the central government, provincial governments and various local agencies involved in supervising the industry.

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Much of what CIL said in its report is true. Power utilities in India are said to be already scouting abroad for coal mines, with some having met with success.

In fact, on a recent visit, Poland’s Deputy Minister Marek Magierowski said his country’s expertise in mining, especially in coal, could help boost collaboration with India. Magierowski, who was in India for the Bangla Business Conference and the Raisina Dialogue, spoke about bilateral relations, Europe’s Russia problem and Poland’s Europe problem. The Minister also pointed out that for both nations, coal would remain important to their energy needs “despite the problems posed by regulations that have to comply with climate change.”