Open acreage coal mining to create level-playing field, but may not trigger a rush of investors

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Opening the coal sector to private and foreign participation, a landmark reform initiated by the Narendra Modi government, marked the end of coal nationalisation and dubious captive mining era. In future, blocks will be awarded without any end-use restrictions. However, this may not trigger a rush for investments in the coal sector, says an article in Hindu Business Line.

This is partly because, India was too late in opening the sector and, thereby, missed the era of coal rush that ended last decade. During that period, ground conditions for mining became more challenging in India, due to environmental and land acquisition-related concerns, impacting the potential return on investment.

To add to the problems, the government is in the mood to auction the same blocks that were once created for captive use. This might help speed up the process. But on the flip side, these blocks are too small to attract global miners which have access to modern technology. A better option would be to delimit the blocks and introduce open acreage system, as in the oil and gas sector, allowing bidders to decide on the size and kind of mines.

According to Global energy statistical yearbook, China produced 4.5 times more coal than India in 2018. With China restricting production in recent years, this number has come down substantially in recent years as the country restricted production.

The performance of India’s coal sector will look paler, given the vast availability of opencast reserves closer (within 300 m) to the surface, which are easier to mine.

Nearly 94 per cent of Coal India’s (CIL) production, which was 83 per cent of the national output of 730 mt (2018-19), came from opencast mines. China, on the other hand, produces 86 per cent coal from deep underground reserves, the US 40 per cent and Australia 20 per cent.

India has 25 per cent underground reserves, which were neglected for want of technology. More than half CIL’s production comes from small contractor-operated mines that thrive on compromised technology and labour-cost arbitrage.

Given that coal reserves are concentrated in heavily forested zones compared with China or Australia, the disproportionate focus on low-cost opencast mining has sharper implications for the environment. Roughly 3,000 hectares of land is plundered annually, at the current level of production.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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