The Union cabinet’s approval today for the methodology for conducting auction of coal blocks for commercial coal mining is a major step forward in the implementation of coal sector reforms by the Modi government, experts said.
The move will have significant positive impact across multiple sectors including power generation, and manufacturing industries apart from ramifications for stressed power assets, merchant power prices and volume of coal imports, they said.
“This is a game changer across multiple sectors. Power generators can source commercial coal to improve margins and availability. Further, as merchant power prices fall, power utilities and manufacturing industry, too, benefits from lower energy costs,” said Kameswara Rao, Partner at accounting and consultancy firm PwC.
He added as a result of the approval for commercial coal mining methodology, new owners of distressed assets will no longer worry about uncertain fuel supplies and can contract with commercial coal suppliers to revive their projects. “On a broader note, we will see industry consolidation and the rise of large vertically-integrated energy companies with interests in coal mining, power generation, transmission and distribution to retail supply,” Rao said.
The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi today approved the methodology for auction of coal mines or blocks for sale of coal under the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957. The opening up of commercial coal mining for private sector is the most ambitious coal sector reform since the nationalisation of this sector in 1973, the government said in a statement.
According to Anjani Agrawal, Partner at accounting and consultancy firm EY, opening the coal sector to commercial mining would accelerate adoption of technology, productivity and competitiveness into the coal sector. “However, success will depend upon the size of blocks identified, flexibility of sales, distribution & pricing etc and the consistency of regulations over a long period,” he said. Agrawal also added that the coking coal segment requires urgent attention to reduce import dependence but, hopefully, access to logistics and other infrastructure will be on an even playing field.
Another sector expert, Vanita Bhargava, Partner at Khaitan & Company, said the cabinet’s approval would ease the availability of coal and stabilize coal prices. “The methodology will help in maximizing the value and potential of coal. The opening of auction for private companies will provide a level playing field to private players, will reduce ambiguity and bring about transparency in the process,” she said. Read More
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