In a bold move which will end Coal India's monopoly. The cabinet has approved opening up coal mining to the private sector for commercial mining.
Coal minister Piyush Goyal announced that allocation will be done through auctions and that there would be no restrictions on end use or on prices.
In an interview to CNBC-TV18, Susheel Kumar, Coal Secretary, Government of India spoke at length about the announcement.
Kumar said that next month we are likely to announce the timeline as well as name and number of coal mines which are going to be offered.
He further said that we expect process of coal mining auctions to conclude by March 2019.
According to him, international coal miners will express interest in coal mine auctions. We have got feelers from international mining companies to invest in India, he added.
He mentioned that we have identified big blocks with 40-50 million tonne of reserves.
On logistics front, he said Indian Railways are gearing up to aid logistical issues with regards to supply.
He expect logistical issues for coal mining to be sorted out in next nine months.
Talking about Coal India, he said we expect government to bring down stake in Coal India to 75 percent in FY19.
Below is the verbatim transcript of the interview.
Latha: Timeline, just about everyone is waiting to know when the bids will be opened and when is the earliest we can see the first private sector coal miner in the country?
A: Next month we are likely to announce the timeline as well as the name and number of coal mines which are going to be offered.
Latha: From then on to bidding and to opening of the tenders what should be a reasonable timetable?
A: I think fiscal 2019 the process should be completed.
Latha: Fiscal 2019 is a long time, would it be calendar 2018?
A: It is difficult to say right now, but obviously, the government will try.
Sonia: Production may take a bit of a time, but by when will the auctions conclude you think by the end of the calendar year maybe?
A: I would still not be very specific but we have targeted fiscal 2019.
Latha: So we can work with March you think?
A: Yes.
Sonia: The other big question is have global mining giant shown any kind of interest or will there be any kind of interest of companies like say BHP, Rio Tinto, Anglo American and what is the government really doing to attract these big names?
A: I think big names are interested. We have feeler, but we also have to be realistic. You have to keep in mind that there is a Paris Climate deal. The long term profits of coal are not very bright. Medium term and short term of course coal future I would feel is bright and especially in countries like India and other developing countries. So, I would feel that global giants would be interested.
Sonia: What are the big challenges currently? We have been speaking about the size of blocks that would be identified, pricing, consistency of regulations etc. what are the big challenges that need to be overcome right now for this process to go through smoothly?
A: No, I think the big challenge is managing the expectations on both sides, on the government sides so that the message doesn’t go that it is an effort to maximise revenue and on the bidders side to come prepared for sustainable mining and be fair and transparent. I think that is the biggest lesson that one has learnt from the last auctions which were not commercial mining but end-use mining. We have to be realistic on both sides.
Latha: We did speak to Anil Agarwal and other people who are prominent in the mining space after all the Vedanta Group has even bought into Anglo American - one theme we got from potential bidders is that government should not look for revenue maximisation but should look for more productivity - how would you react to that?
A: I am entirely in agreement and that is what our policy is. We are not looking at revenue maximisation because the country and the public interest at large have to be served. We have to see that the coal mining is sustainable, environment friendly. Clean coal is given to industries and everybody has win-win situation in the country.
Latha: Approximately what would be the sizes of the blocks that will be on offer? You all may have done some homework?
A: We have identified some big ones with 40-50 million tonnes per tonne per year production. We also have certain medium and certain small mine, so we will have a mix of all the three.
Latha: It will be in various tranches, the bidding?
A: Yes.
Sonia: How will the pricing of the coal will be done? Will the cost of commercial coal be higher than the current e-auction prices?
A: The cabinet has approved full freedom of pricing to the successful bidder. So, it depends on their efficiency. If they are very efficient then it will certainly be much lower than the Coal India price.
Sonia: You also said that you have got some feeler from big international companies which companies would they be?
A: No, I don’t think we can discuss that.
Latha: We just spoke with Gopal Singh, the Chairman of Coal India. He was saying that one of the big reasons why they are not able to reach their targets of 600 million tonnes a year is that there is an inventory log jam. Where is an inability to dispatch beyond a point and they already have, I think he said 35 million tonnes in terms of inventory. Anything being done in terms of a conversation with railways or other ministries to de-clog the situation?
A: You have to look at the logistics sector in totality. Our country has been stagnating at a certain level of coal production and accordingly our logistics specially railways they have adjusted. Now suddenly the dispatches are much more, so railways are gearing up. We have a co-ordination meeting, we meet every fortnight or every 20 days to sort out the issue. We have identified 14 railway projects which need to be completed quickly and we are doing that. Currently, there is a problem, but I am sure we can find a solution.
Latha: You think it can be unclogged in how much time - six months, three quarters?
A: Yes, I think so because in six months to three quarters we should see some changes.
Sonia: Any word from the government on Coal India’s divestment?
A: Coal India has to divest to the extent of bringing government’s equity to 75 percent, you already know that. So, that will happen.
Latha: That will happen FY19, is that the idea?
A: Yes, I think we will try that.
Latha: Finally, Piyush Goyal also clarified that the revenue will go to the states, can you give us some idea of what maybe the conditions when the auctions happen? I mean there will be the usual rehabilitation and contribution to the district mining fund can you give us an idea of how are you looking at how the revenues and what conditions will come?
A: You want conditions of auctions?
Latha: Yes, auction.
A: It will be an ascending forward auction. The bid parameters would be rupees per tonne. Whosoever offers the highest rupees per tonne he will win. The floor price will be fixed based on the intrinsic value of the coal mine. This bid whatever is the successful bid would be adjusted annually based on the wholesale price index (WPI) coal. So, if WPI coal increases than this follow-on public offering (FPO) will have to be adjusted accordingly annually. Those are the broad conditions.
They will be complete freedom to export and freedom to price. There is 100 percent FDI which government has approved; cabinet has approved. There is flexibility in coal production schedule. So that if the market is the down sometime then they can adjust their production accordingly. So, these are the broad conditions.
Obviously, all the money all the receipts will go to the state government and it will be of three types. First is the initial money, which we will receive that will go to the state government. Then there will be royalty and then there is a flow to the District Mineral Foundation (DMF).
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