Govt rejects miners' coal-sharing scheme with private players

The Government has spiked a proposal by coal miners such as Coal India and Singareni Collieries Co Ltd (SCCL) to exploit their unviable coal mines by handing over such projects to Indian and foreign investors through a competitive bidding process on a coal-sharing formula.

This new business model designed by the coal producers was aimed at opening up unviable mines across the country, which private miners could make viable through better productivity levels and new technologies.

While Coal India, which has eight subsidiaries, had started the process of inviting bids for two such unviable projects, SCCL had, last year, initiated the process for one of its seven identified unviable mines. SCCL had also shortlisted two parties for this project in Warangal district of Andhra Pradesh and was in the process of inviting final price bids.

“We have dropped these (unviable mining) projects for the time being as the Government has not given us the permission. We are, however, continuing talks with the Government and will revive the scheme after we get approval,” Mr S. Narsing Rao, SCCL's Chairman and Managing Director, told Business Line .

The Government has refused to give its nod for such projects as these would be treated as deemed coal linkages. The reason: the private investors would be allowed to retain a share of the coal mined at these mines, according to the business model put forth by the miners. Hence, these would fall beyond the realm of coal linkages that are decided by the Government for power, cement and other sectors. State-owned coal producers such as SCCL generally take up mines that provide an IRR of 12 per cent at 85 per cent yield levels. Projects that involve an IRR of below this level are bracketed under unviable mines.

For example, SCCL, which is owned by the Government of Andhra Pradesh (51 per cent) and the Government of India (49 pc), has seven mines, where its cost of production is expected to touch Rs 2,000 a tonne, as against its present aggregate cost of Rs 1,392 per tonne. Its aggregate realisation last fiscal was Rs 1,610 a tonne, translating into a margin of Rs 218 a tonne at this level of production cost.

Such projects could be made viable by private miners and equipment makers through improved productivity and technology. For instance, SCCL's wage costs alone work out to about 44 per cent of the cost of its products, which private operators could scale down to improve productivity.

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