Coal producers to push for third party participation in unviable mines

Amit Mitra Hyderabad | Updated on June 08, 2011 Published on June 08, 2011

Domestic coal miners such as Coal India Ltd (CIL) and Singareni Collieries Co Ltd (SCCL) are trying to include in the Working Group report on Coal for the Twelfth Plan a proposal to exploit their unviable underground coal mines through private participation on a coal-sharing basis.

The coal miners had earlier put forth this proposal to the Government, but it did not get the approval, as any coal sharing formula between the miners and a third party would be treated as deemed coal linkages and, therefore, fall outside the Government's coal distribution policy. The Working Group, which is slated to submit its draft report by December, is likely to include the proposal in its report, possibly with some modifications to the original proposal, sources said.

Mr S. Narsing Rao, Chairman and Managing Director of SCCL, who is also a member on the Working Group, did not want to comment on the issue, but agreed that opening up unviable mines through third party participation could be an effective way to increase India's production from underground sources.

The proposal was mooted by the coal producers with the objective of opening up unviable mines, mostly underground, across the country. It is expected to get a positive response from power producers, who could take up such projects and, thereby, get assured supplies of the raw material at lower prices.

CIL's production from underground resources, for instance, has fallen from 75 million tonnes in 1975 to about 40 mt today — a decrease of almost one mt every year for the last 36 years. SCCL's underground production is 12 mt, which can at best be increased to 15.5 mt in the next five years.

SCCL takes up mines that provide an IRR of 12 per cent at 85 per cent yield levels — its current cost of production is about Rs 1,400 a tonne, while its aggregate realisation last fiscal was about Rs 1,610 a tonne.

Project that involve an IRR below this level are bracketed under unviable mines. Such projects could be made viable by third party investors, including power producers, through improved productivity and technology. For instance, SCCL's wage costs work out to about 44 per cent of cost of its products, which private operators could scale down to improve productivity.

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Published on June 08, 2011
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