Captive mining’s share in India’s coal production is rising, expected to partially replace imports

Representative image

Captive mining's contribution is expected to rise to 20 percent from the current 13 percent, by the end of the current decade, according to analysts. The increase is expected to improve availability and efficiencies, but not hurt Coal India’s prospects.

Increased captive mining is expected to partially replace imported coal. This rise also faces two challenges — one is higher pricing due to auction premiums and the second is dirty-coal financing-related woes.

India produced 893.08 million tonnes (MT) of coal in the last financial year. Of this, 13.7 percent or 122.72 MT was produced through captive and other means, according to Coal Ministry data. Vibhuti Garg, director, South Asia, Institute for Energy Economics and Financial Analysis (IEEFA), expects captive mining’s share to go up to 20 percent by 2030.

Starting with a low base, captive mining growth is expected to outpace overall coal production, each growing at 4.5 percent and 4 percent, respectively, according to Abhishek Rakshit, senior research analyst with Wood Mackenzie, a global energy research and consultancy group. “Output growth from captive and commercial mines will remain strongest at 4.5 percent between 2023 and 2050,” he said.

India opened up its coal mines to private players in a big way in the last few years, first for captive use and recently for partial merchant sales. Despite this, legacy government-owned companies such as Coal India Ltd (CIL) and Singareni Collieries Company Ltd are expected to remain India’s dominant coal suppliers, said Rakshit.

Instead, India’s coal imports are expected to emerge as a favourable casualty. “CIL prefers power sector consumers over industrial consumers. So industrial consumers often depended on imported coal to fulfil their demands. So after commercial mines start production at full capacity, it won't have any impact on CIL’s coal share, but it will displace the share of imported coal,” said Ashis Kumar Pradhan, coal analyst with Rystad Energy, an independent research and business intelligence company.

CIL’s price competitiveness has a role to play.

Kunal Kothari, analyst with Centrum Broking, said, “CIL’s price is cheaper compared to international prices. It holds the monopoly to meet energy demand of the nation. Even if captive mining rises, Coal India will have to increase its output steadily to meet rising energy requirements. I do not expect private players to undercut CIL, and of the auctioned coal mines, any meaningful private capacity will take two to three years to commission.”

Further, sales or supply from captive and commercial mines will continue to remain costlier than CIL’s supply. “Captive/commercial miners are required to pay a premium over a base price and the base price (discovered using CIL’s contracted price, e-auction price and imported coal price) itself will always be higher than the coal prices of CIL,” said Rakshit of Wood Mackenzie.

“So, until a level playing field is set for private miners, it will be very difficult for them to offer coal at a discount to the CIL prices,” he added.

While the increase in captive mining augurs well for improved domestic availability, Garg from IEEFA warned that if companies (that have energy requirements) invested in captive coal mines, such a move will inhibit their ability to raise funds both from international and domestic markets.

“If they start investing in captive coal mines, it certainly would have an impact on the timelines for energy transition… The central bank (Reserve Bank of India) is coming up with a climate risk framework. Also, SEBI (the Securities and Exchange Board of India) is working on an ESG (environment, social and governance) rating framework, so this would reflect poorly on their ESG score,” she explained.