ICRA says commercial mining rollout faces uncertain economic outlook due to COVID-19
"The opening up of the coal sector for private commercial mining, for which the first list of mines have been published by the central government on June 18, 2020, is an important reform... However, its rollout has been at a time when economic outlook remains uncertain amid the COVID-19 pandemic, leading to weak investor sentiment," it said.
Given state-owned CIL's ambitious target to reach one billion tonne coal output by FY'24, private commercial miners would face stiff competition in gaining a foothold in the domestic market, it said.
"In a market, where an overwhelming majority of the domestic supply is controlled by CIL and Singareni Collieries, affordability, dependability and consistency in coal quality would remain critical drivers that would determine if the existing coal customers decide to partly shift their sourcing to private commercial coal miners.
Experienced players, who have the knowhow of efficiently operating a coal mining business, stand a better chance in making a dent in the market share of the existing players, it said.
"Over the long-term, we believe that coal consumers are likely to benefit from increased competition in the domestic coal mining industry," ICRA Senior Vice President and Group Head Corporate Sector Ratings Jayanta Roy said.
Around 94-95 per cent of Coal India's overall production comes from opencast mines, having attractive stripping ratios, which have an inherent cost advantage over their peers, the agency said.
Consequently, the operating cost for Coal India's opencast mines reportedly stood at a competitive Rs 833 per metric tonne in FY'19.
Moreover, out of Coal India's 582 million tonnes (MT) of despatches in FY'20, around 89 per cent has been supplied under long-term fuel supply agreements (FSAs) where the realisations remain very competitive, ICRA said.
Given this cost competitiveness, as well as the arrangements already available to deliver coal to clients' plants, threats to any loss in Coal India's market share in the FSA segment remains low, consequently the company would continue to dominate the sector in the foreseeable future, it said.
As per ICRA's latest report on the coal mining sector, the domestic coal demand is estimated to increase at a modest compounded annual growth rate (CAGR) of 2.9 per cent between FY'21 and FY'27. This is much lower than the CAGR of 5.2 per cent registered between FY'13 and FY'20.
However, the geology of the mines belonging to the Singareni Collieries Company Ltd remains less favourable, resulting in their operating costs being more than double that of Coal India.
Consequently, vulnerability from increased competition remains much higher for Singareni Collieries, whose notified coal prices have an average premium of 40-125 per cent over Coal India's notified prices for various grades of coal.
In FY'20, India imported 243 MT of coal from the seaborne market which entailed a hefty import bill of approximately USD 21 billion.
Out of this, around 52 MT was coking coal imports, which would be difficult to replace, given its limited domestic reserves. The balance 191 MT of imports was contributed by thermal coal, of which India has abundant reserves, the agency said.
India's low-grade thermal coal imports stood at an estimated 110 mt in FY2020, and its import substitution with domestic coal remains a potential opportunity for private commercial miners, it said.
"For the balance 75-80 MT of high-grade thermal coal imports, options to partly substitute such imports by supplying washed coal to the non-regulated sector also remains a potential area of growth for private commercial miners. Apart from import substitution, increasing market presence in the seaborne export market, and faster adoption of coal-gasification technologies may be other potential avenues of growth for private commercial coal miners," Roy added.
The biggest challenge in executing a large greenfield coal mining project is the risk of delay due to land acquisition hurdles and securing regulatory clearances.
For these 41 mines on offer, around 35 per cent of the land falls in forest areas, the report said adding therefore, pro-activeness of the Centre and the state governments to ensure time-bound clearances would remain critical towards achieving self-sufficiency in country's thermal coal availability.
The state of Odisha would play a key role, with most of the larger blocks on offer being concentrated in this state, ICRA said.
Total nine coal blocks from Odisha have a cumulative peak capacity of 124 million tonnes per annum (MTPA), accounting for around 55 per cent of the total capacity and around 63 per cent of the cumulative geological reserves of the blocks on sale for commercial mining, it added. SID MKJ