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How Coal India plans to take on a liberalised coal regime

In face of the coal sector opening up to other commercial mining companies, Coal India is gearing up to face the new challenge in a three-pronged approach. In the first place, it plans not only to retain its hold on coal prices, but tune its marketing and sales approach towards long-term supply commitments, and secondly use its consultancy wing’s consultancy services to the fullest. This apart, a diversification plan is underway to open new revenue streams.

The Centre has recently opened up the hitherto monopolistic coal market for the private sector where bids for 10 coal blocks are expected to be placed for commercial mining of the black diamond. Sources suggest that Odisha and Chhattisgarh each have four blocks while Madhya Pradesh and Jharkhand accounts for one block each for private commercial coal mining.

While the total coal allocation across these blocks cannot be ascertained owing to unavailability of the confirmed blocks put up on auction, the Maharatna coal behemoth alone has 413 mines in its kitty which produces over 530 million tonne (mt) of coal annually — enough to retain its monopoly.

Coal India officials stated that the newly introduced SHAKTI scheme has paved the way ahead for the company. Now, instead of relying heavily on e-auctions for its bottomline, Coal India will be focusing more on ensuring long-term supply commitments to the power plants.

A company official stated that it is expected that the new entrants will be more interested in short-term supply agreements which, in turn, will leave Coal India to dominate the long-term supply auctions.

Although short-term supplies ensure healthy bottomline and quicker price corrections according to market condition, long-terms upply commitments ensure a healthy topline and an unfaltering bottomline.

Analysts stated that although Coal India might be shielded off even as new miners enter the coal market, a pitched battle might be fought in short-term and spot sales which might affect Coal India’s e-auction realisations and hence, its bottomline in the coming days.

Although e-auction sales account for a 15-20 per cent of the total sales volume, its contribution to the net profit is in the range of 60-70 per cent.

The official pointed that although commercial mining from other companies will not immediately pose any threat to Coal India, yet, it needs to watch and tailor its marketing initiatives accordingly.

“Given the sheer volume of our production, no other company will be able to match it and hence Coal India will continue to command coal prices”, the official said adding that at best, the new entrants to commercial coal mining will be able to produce only 5-10 per cent of Coal India’s annual output.

Analysts pointed out that it will take atleast 4-5 years for the new entrants wining the coal blocks to commence operations (after completion of auctions) and it will give Coal India enough buffer time to course correct itself and maintain its hegemony.

As an obvious effect of a liberalised coal market regime, Coal India officials stated that the Central Mine Planning and Design Institute Limited (CMPDI), one of its subsidiaries, can play a pivotal role to execute services in exploration, mine planning & design and other mining needs for the commercial mining and other minerals sector as well as it has the requisite expertise. In turn, it will lead to increased revenue from consultancy services.

“Opening up the coal 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 and hence the new policy (to allow other companies to commercially mine and sell coal) will widen its scope”, a CMPDI official said adding that lately, there has been a three-fold increase in CMPDI’s income from non-Coal India consultancy services.

CMPDI not only plays its role as Coal India’s technical advisor, but often engages with the petroleum and natural gas ministry as well. But importantly, it has been getting consulting orders from private mining companies as well.

The world’s largest coal miner is also on a diversification mode and plans not only to turn itself into a holistic energy company by incorporating solar technology collaborations with Solar Energy Corporation of India Ltd (SECL) to jointly develop 200 MW solar energy project in Madhya Pradesh at an estimated cost of Rs. 1,300 crore. At a larger scale, the coal company’s agreement with SECL targets a total of 1000 MW solar projects in different parts of the country.

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

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

Source: Business Standard

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