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Despite liberalisation, power demand to sustain Coal India's dominance

Coal India is confident of their current market dominance where it controls 80% of country's energy needs

Avishek Rakshit  |  Kolkata 

Coal India
Representative image

Despite opening up of the coal sector to private miners, Coal India's dominance in the field is expected to remain firm as the will continue to bank heavily upon this state-owned coal monolith.

officials said that the company has a mandate to supply at least 75 per cent of the production to the and the rest can be offered to others like cement and steel; however, the private miners are most likely to be exempted from the clause.

"The reform states that private miners can sell or utilise coal in any manner they like. Thus, compared to us, the is not a mandated priority for them. Being liberalised, they are at will to sell coal where they will find the best price discovery", a senior official said.

With currently routing its supplies majorly to the power sector, the cement and steel plants are bearing the brunt of coal and railway rake shortage.

Also, a second official opined that private will be more interested in short-term supply agreements which will allow them greater flexibility to react as per global trends and earn higher margins.

On the other hand, will continue to focus on long-term supply agreements which warrant higher and steady offtake thereby ensuring a stable topline in the long term.

Although a section of perceive that it will make the landscape more competitive and will lead to better price discovery, officials are confident that given their current market dominance where it controls 80 per cent of the country's energy needs, it will continue to dictate prices.

"No other company can match our production volume and it is a well known fact that market prices depend to a large extent on the market leader's reaction to any market dynamics", the company official said.

Sector analysts said that for any new entrant in commercial coal mining, it will take atleast 5-6 years to operationalise in the first place and then another three years will be needed to run the mine under full capacity and attain economies of scale.

"Given such a timeframe, is expected to continue its dominance during these years and such a huge timeframe will also allow this company to adjust itself fast to any market dynamics. At least for the first 3-4 years after the private start selling coal, prices will be the benchmark", an analyst with Motilal Oswal said.

Typically, it is estimated that the auction process will take a year to conclude, land acquisition process for the mine will take another three years and setting up the infrastructure for mining will take another year.

Despite liberalisation, power demand to sustain Coal India's dominance

"caters to nearly 80 per cent of the country's energy needs and hence enjoys a near-monopolistic status. It will be extremely hard for the new entrants to substantially challenge that monopolistic status with pricing", a sector expert said.

Nevertheless, Association (CCA) is expecting sourcing of coal to become much easier as new mines would be made operational and foresee big players including international firms entering the field.

The success, however, will depend on the size of the mine and the reserve price in the forthcoming auctions.

"The mine will go to the bidder who offers the highest amount as royalty income to the state government where the mine is located. The reserve price needs to be justified as per the mine which will go under the hammer for any meaningful outcome", a CCA official said.

Coal secretary Susheel Kumar said that the private companies, as well as Coal India, can also explore exports as "there is no restriction and no changes to the policy is needed to promote coal exports".

"Exports to neighbouring countries can be explored as well if they (miners) find good prices", he said.

Analysts, however, are sceptical how Indian coal can fare against the black diamond from Australia, Indonesia, South Africa and others owing to its lesser gross calorific value and presence of impurities.

First Published: Wed, February 21 2018. 22:05 IST