Reeling under the slowdown, India Inc may go soft on coal auction

Suresh P Iyengar Mumbai | Updated on June 19, 2020

The government decision to shortlist 41 coal blocks for auction to the private sector for commercial mining comes when most of the metal and power companies are under tremendous stress due to the sharp fall in demand amid the Covid induced industrial lockdown.

Funding from banks to the metal and power sectors has almost dried due to the inherent risk in these companies, which have highly leveraged balance sheets.

However, most companies, including Vedanta, Hindalco Industries and JSW Steel, have confirmed their participation in any coal auction to be conducted by the government, to secure their long-term raw material requirements.

The bidding may not be that intense given the current state of large corporates and near-term economic growth prospects, said a steel company executive.

Demand slips

Coal demand from the major consuming sectors was down last fiscal year due to industrial output. Coal consumption by the steel sector was down 1 per cent at 109 mt (111 mt) while that of cement and power was down 1 per cent and 3 per cent at 334 mt and 1,044 mt, respectively.

Coal imports increased 3 per cent to 243 million tonnes of coal in FY20, while domestic production increased 0.1 per cent to 729 mt (728 mt) last fiscal year, mainly due to excessive rainfall hitting mining operations.

In fact, coal production would have declined if not for the ramp-up in production in the March quarter before the outbreak of the Covid pandemic.

Though mining activity continued during the lockdown, production was impacted as many workers left for their hometowns in the wake of the pandemic. This apart, the halt in business activity pulled down demand for power sharply.

Stable policies key

The coal auction now planned is a part of the union government’s Aatmanirbhar Bharat Abhiyan to achieve self-reliance in meeting energy needs and save about ₹30,000 crore annually on the import bill on thermal coal.

Of the 41 coal mines put on the block, 34 coal blocks are fully explored, four are partly explored and three are regionally explored. Land acquisition, which is considered a major challenge for investors, has been completed only in 12 of the 34 fully explored coal blocks.

Eleven coal mines are situated in Madhya Pradesh, followed by nine each in Chhattisgarh, Odisha and Jharkhand, and three in Maharashtra.

Over all there are 37 non-coking coal mines used in power production and two each of coking and combo mines (coking plus non-coking mines), used by metal companies, put up for sale.

The move to allow private sector participation in commercial coal mining, which has been the domain of the public sector, may help to curb imports in the long run only if the companies overcome challenges in the medium term, he said.

Stable government policies would be the key to achieve Aatmanirbhar not only in mining but across sectors, he added.

Published on June 19, 2020

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