New Delhi, 10 September India’s coal mining sector must eventually open up to allow foreign companies to own equity stakes if much-needed domestic production is to rise as fast as possible, state-run MMTC Chairman Sanjiv Bhatra told Reuters on 10 September.
“For India as a whole there is no alternative but to open up to foreign investments through privatisation,” he said.
The gap between India’s coal demand and supply in 2006-2007 is almost 55 million tonnes, according to projections by the Coal Ministry. This gap is forecast to widen over the next several years as demand for power and cement grows.
Major Indian coal consumers such as Tata Power and Reliance Energy have not flocked to begin captive mining projects, where power plants are built on mine sites. Instead, they have been increasing their imports of coal, mostly from Indonesia.
Some Indian coal users, such as Tata, have bought into Indonesian coal mines to ensure security of supply.
If the coal sector was liberalised to allow foreign entrants, it might attract international mining companies such as Rio Tinto and BHP Billiton to develop mines within India, on an efficient and large scale, Bhatra said.
At present, there is a tussle between Indian domestic coal users or generators, traders like MMTC and miners like Coal India to acquire coal reserve blocks to develop mines, he said.
“There should be open, e-bidding for coal blocks, for iron ore also. All the different sectors believe they should be given preference, they have the expertise, etc. It is extremely difficult for the government to decide how to develop this,” Bhatra said.
There are companies with coal blocks which cannot afford to develop them but which are hanging onto them. “This is a new situation which we are facing and it requires a new approach to resolve it,” he said.
“But India is a democracy and the government takes time to fully consult before it makes decisions. We will make the right decisions but it will take time,” he said.
MMTC is itself developing a large mine 600 metres underground, which will become fully operational in around five years, Bhatra said.
But MMTC has no intention at this stage of buying into coal mines outside of India. “There are no attractive assets. Foreign mine owners are asking for the sky and it’s easier for us to buy domestic mines if we want to buy mines,” he said.
“MMTC is a trader and coal only accounts for 6-7% of our business,” he said, but added that India’s demand-supply gap and burgeoning imports meant steam coal would become increasingly strategically important for India as a whole and for MMTC.
Some Indian consumers and traders last week complained that coal and freight rate volatility has made it almost impossible to obtain long-term supply agreements for imported coal. But Bhatra said MMTC has had no difficulty in securing long-term coal contracts with the bigger suppliers.
Domestic coal supply should improve when e-auctions are revamped, he said. “E-auctions by Coal India were suspended but it is the best and fairest way to do business and I think they will eventually succeed and become the main method of buying and selling domestic coal,” he said.
Coal is a minor business for MMTC but it is still India’s largest exporter of iron ore to China. This year’s exports are likely to be very similar to 2006’s level of 94 million tonnes, maybe closer to 100 million tonnes.
There is still extremely strong spot demand from China for iron ore. Record freight rates make it cheaper to buy spot from India at $130 a tonne and still rising, than to buy from Brazil. Freight rates put Brazil at a disadvantage but India is benefiting, Bhatra said. REUTERS