Entry of private sector in India’s coal mining may not rescue stressed power plants

Finance Minister Nirmala Sitharaman’s announcements over the weekend to allow commercial mining in India’s coal production and remove the government monopoly is unlikely to provide an immediate relief to stressed thermal power companies even as they benefit from improved coal linkages in the long run.

Analysts say that since the earliest coal evacuation by the private sector under the new policy is possible only in FY26-27. It is unlikely that the stressed thermal power plants will be able to financially hold out that long.

The government has decided to permit a revenue-sharing mechanism instead of regime of a fixed rupee per tonne in commercial coal mining, allowing any company to bid for a coal block and sell in the open market without end-use restrictions. The government plans to place 50 coal blocks on auction with no eligibility conditions for players except the auction value.

Finance Minister Sitharaman said that even though India has the third-largest coal availability within its untapped mines, India still imports coal. These changes were originally proposed in January through the Mineral Laws (Amendment) Ordinance, 2020. The government also said it would invest Rs.50,000 crore to improve coal mining-related infrastructure which will help in achieving Coal India’s target of 1 billion tonnes of production by FY24.

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However, the auction and revenue sharing model for coal mines would likely lead to high production cost of coal, which in turn would result in higher tariffs for the developers. The current stress in the power sector is largely due to ailing health of power distribution companies (discoms) and subdued power demand.

Power demand has taken a huge knock during the lockdown period falling by about 25% year-on-year in April and by 18% during May. Furthermore, the combined coal stock of 119.24 million tonnes at power plants and at pitheads of Coal India is highest ever, dispelling any notions of coal shortage in the near future.

Land acquisition, environmental and forest clearances, rail/road connectivity, rehabilitation and resettlement of locals generally takes 4-5 years period and then, overhead excavation takes another one year before coal productions at mines can begin. Private power generating companies might well fold up long before that.

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