Coal India likely to retain dominant position despite opening up the sector

Bloomberg New Delhi | Updated on August 29, 2019

Earlier, the government had permitted 100 per cent FDI under the automatic route for coal mining activities.

The world’s biggest coal miner is likely to hold on to its crown for now even as competition increases in India, which opened its doors to foreign miners to boost output and curb surging imports.

The South Asian economy will allow 100 per cent foreign direct investment in mining and sale of coal, commerce and industry minister Piyush Goyal told reporters in a briefing Wednesday, giving final shape to a reform he introduced as minister for coal in 2014. While that opens up the sector to private companies, both Indian and foreign, it will be a while before it reduces the dominance of monopoly producer Coal India Ltd., according to analysts with Emkay Global Financial Services Ltd.

Read also: Government opens up FDI door further

India’s coal demand is expected to rise with the addition of new thermal power plants and steel mills, making the nation a bright spot for coal miners in a world that is turning away from the dirty fuel. Still, difficulties in getting regulatory clearances, delays in land acquisition and shortages of railway rakes to haul the commodity may be a deterrent for foreign miners.

We are still some time away from merchant coal mining given the overarching presence of Coal India, Emkay analysts including Vishal Chandak said in a note Wednesday. Once the coal is mined, the new miner will have to compete with Coal India prices to sell or enter into long-term contracts for sale.

The state miner has a competitive advantage over other companies as it gets the mines for free, while others will have to participate in auctions to get access, raising their costs. At BSE, the shares of Coal India ended with a rise of 2.5 per cent to ₹189.75on Thursday, outperforming a 1.02 per cent decline in the benchmark S&P BSE Sensex.

Published on August 29, 2019

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