Coal India plans for a liberalised regime

More focus on long-term supply and diversification

With the coal sector in the process of being opened to other commercial mining companies, government-owned Coal India (CIL) plans a three-pronged approach. One, to retain hold on prices by, among others, tuning its marketing toward long-term supply commitments. Two, commercialise its consultancy wing’s services. This apart, a diversification plan is on, to open new revenue streams.

The Centre is expected to open 10 coal blocks for private commercial mining bids. Sources suggest four blocks each in Odisha and Chhattisgarh and one each in Madhya Pradesh and Jharkhand. CIL presently has 413 mines, producing a little over 530 million tonnes annually.

A company official said they expect the new entrants to be more interested in short-term supply agreements, leaving CIl to dominate the long-term supply auctions. Analysts, though, say as new miners enter the market, they expect a battle in short-term and spot sales. This might affect Coal India’s e-auction realisations and, hence, its profits. Although e-auction sales account for only 15-20 per cent of total sales volume, their contribution to net profit is 60-70 per cent.

The CIL official conceded they’d need to watch and tailor marketing initiatives accordingly. Adding: “Given the sheer volume of our production, no other company will be able to match it. Hence, Coal India will continue to command coal prices.” 

At best, he added, the new entrants to commercial coal mining would be together able to produce only five to 10 per cent of Coal India’s annual output. Analysts agree it will take at least four to five years for the new entrants to commence operations, after completion of the auctions. This should give CIL enough time to course-correct and maintain hegemony.

A liberalised coal marketing regime would, say CIL officials, itself allow another revenue stream. Its Central Mine Planning and Design Institute (CMPDI), one of its subsidiaries, could play a big role in services for exploration, planning and design and other mining needs for the sector, including minerals in general. So, increased revenue from consultancy.

“Opening the mining sector to other companies will result in these firms seeking services related to exploration and mining. CMPDI is already a strong player in this field,” said an official from there. Lately, he added, there had been a three-fold increase in CMPDI’s income from non-Coal India consultancy. 

Apart from being Coal India’s technical advisor, CMPDI engages with the petroleum and natural gas ministry but it has been getting consultancy orders from private mining companies, too.

The world’s largest coal miner also plans to turn itself into a holistic energy company. It has tied up with Solar Energy Corporation of India (SECL) to jointly develop 200 Mw project in Madhya Pradesh, at an estimated Rs 1,300 crore. At a larger scale, the agreement with SECL targets a total of 1,000 Mw in solar projects over different parts of the country.

“It is clear the way ahead for the company is to diversify. Coal India cannot continue to rely solely on coal,” said Partha Bhattacharyya, former chairman of CIL.

It is also building four fertiliser projects in joint ventures with other public sector undertakings, expected to open an immediate second revenue channel. Also, Coal India is now keen to venture into metals mining — iron ore and bauxite, among other — and is in the process of identifying the way ahead for collaborations and mine acquisitions.