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Largest miner sees no threat

  • The decision of the government to open up coal-mining to the private sector is unlikely to be an immediate cause of concern for Coal India. The country's largest coal producer has long-term fuel supply agreements with thermal power generators.The disclosure by Coal India to the bourses shows that of the total raw coal sales of 410.52 million tonnes between April and December, 81.26 per cent of the supply has been through assured fuel supply agreements (FSA). The remaining has been through electronic auction, where prices are market driven.NTPC, for instance, has an annual requirement of around 170-180 million tonnes. While it is gradually developing its captive sources, a bulk of the requirement at present is sourced from Coal India based on supply pacts.Then there is the challenge of matching coal supply at FSA rates, which are much lower than auction rates.Coal India data show that the average realisation from coal sold through the fuel supply agreement route has been in the range of Rs 1,100-1,200 per tonne between April and December, much lower than e-auction prices, which are in the range of Rs 1,500-2,000 per tonne, in the same period.The government has selected an ascending forward auction method where the bid parameter will be the per tonne price offer payable to the state government. If there is aggressive bidding for coal blocks, it could add to the cost. If market prices go up, Coal India also stands to benefit from better e-auction rates.

  • "Coal mining is a capital intensive business with a long gestation period. There are challenges of acquiring land, obtaining environment and forest clearances, bringing in mining equipment and finding a buyer to sell coal. Any private sector miner would have to take into consideration all these factors," a source said.While there is a benefit in the form of global mining giants bringing in advanced mining technologies, the viability of commercial coal mining would depend upon the nature and size of the coal blocks on offer."According to industry estimates, coal blocks will be commercially viable to private players only if they are offered in minimum blocks of 40-50 million tonnes," said Angel Broking. The topographical features and nature of coal seams would also be a key consideration. Coal India officials said that they would be geared up to compete with the private sector. The miner has worked out a capital expenditure plan of Rs 9,500 crore in 2018-19.

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