Indian government's move to open up commercial coal mining can halve the annual expenditure incurred on importing non-coking coal to as much as Rs 45,000 crore because of substitution through domestic production, rating agency Crisil said. In fiscal 2020, India imported an estimated 180-190 million tonnes of non-coking coal costing over Rs 90,000 crore.
On May 20, the Cabinet approved liberalization of coal mining by eliminating eligibility conditions for private sector participation.
Earlier, only captive consumers could commercially mine coal. However, this initiative will lend a fillip to commercial coal mining because any private entity can now excavate on a revenue-sharing basis, the agency said.
The decision to liberalize coal mining will engender a significant substitution effect by improving the availability of coal, and help meet rising domestic demand. Around half of India's humongous reserves, most of which is non-coking coal, has not yet been allocated for mining so the potential is substantial, Crisil Ratings Senior Director Sachin Gupta said.
According to Crisil, commercial coal mining can help in reducing the annual import bill by nearly 50% and India can save Rs 45,000 crore.
India has one of the largest coal reserves in the world at 300 billion tonnes, yet it imports a fifth of its annual requirement.
At present, two government-owned miners, Coal India and Singareni Collieries Company, produce over 90% of the coal.
The agency noted that domestic supply grew at a compounded annual growth rate of three% over the past five fiscals.
The government is planning to auction around 50 mines immediately and more in the medium term.
Last fiscal, the government had allowed 100% foreign direct investment in coal mining, enabling global miners to join the fray.
Investments by private miners will induce much-needed competition in the sector, leading to higher productivity.
Besides price, the preference for domestic or imported coal depends on suitability and transport cost, it said.
According to Crisil, sectors such as power, cement and steel will gain the most as they are the largest consumers of non-coking coal.
Once commercial mining picks up, independent thermal power plants and captive power plants can substitute their annual imports of 80-90 million tonnes. However, 45-50 million tonnes would continue to be imported by the thermal plants designed to operate only on such feedstock, another analyst Nitesh Jain said.
He further said that incremental production from these mines will also help bridge the demand-supply gap and reduce imports over the medium term.
Ease-of-doing-business factors such as land acquisition and statutory approvals, rail connectivity to pit-heads and, evacuation infrastructure also need to simultaneously improve for commercial coal mining to take off, Crisil opined.
(Writing by Becky Du Editing by Tammy Yang)
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