India: ‘More steps needed to make commercial coal mining attractive to global players’
India concluded its first commercial coal mine auctions earlier this month. A total of 19 coal mines spread across Madhya Pradesh, Jharkhand, Odisha, Chhattisgarh, and Maharashtra were auctioned in this first tranche. This comes against the backdrop of Union coal minister Pralhad Joshi stating that India will be able to use its coal reserves only for “another 20-30 years”. Sanjay Kumar, director, personnel, at Western Coalfields Ltd, a Coal India Ltd subsidiary, in an email interview highlighted the need to introduce new auction metrics such as recoverable reserves to attract global investors, the continued importance of coal as a fuel in India’ energy mix, and leveraging the Environmental, Social and Governance (ESG) investing culture for country’s energy security. Edited excerpts:
How do you rate India’s first commercial coal mine auction, which concluded recently?
Government of India’s decision to open the coal sector to commercial mining is a welcome and bold step. First and foremost, it is a message to state-owned monopolies that now the government is willing to do business with anyone and everyone; they might as well take a hard look at their efficiency norms and performance parameters.
Going forward, some more steps are suggested to make the proposition attractive for global coal majors. These are: Instead of geological reserves, the offer document for coal blocks must indicate recoverable reserves. Geological reserves are at best a quasi-scientific estimation of the reserves in a block which may or may not be extractable by employing usual technologies. Further, as a thumb rule, companies are able to extract up to 60% of recoverable reserves by employing the usually available technologies. So, indicating the recoverable reserves gives a finite estimate to the potential bidder who can plan the payback period more realistically.
Further, the life of mines being offered should be in the range of 15-20 years instead of 25-30 years or so. This would ensure higher rate of extraction and faster payback for the potential investor. In addition, incentives should be offered to bidders who introduce global best practices and adopt state of the art, or futuristic, mining technologies. This would ensure the infusion of new generation technology in the coal mining sector, where adoption of new-age technologies has been practically non-existent or very slow.
Another thing which would act as a sweetener is automatic, or deemed, statutory clearances such as those of forest, and environment for initial 25%-33% capacity of the mine.
India and the world are transitioning to green economy. In such a scenario, what will be the place of coal in India’s energy mix?
Covid-19 has ushered in an unprecedented global lockdown. This led to reduced demand for electricity, which, in turn, impacted the demand for coal as a primary fuel. Going forward, as electricity produced through the renewable route becomes cheaper, coal may face an existential problem because apart from higher per-unit power generation cost in coal-based power plants, these plants are also seen as contributing to the global warming and environmental pollution.
Considering the fact that coal is going to account for 50 % power generation in India even in 2050, efforts must be made to prolong the life of coal as a preferred fuel. Some steps that may be required to be taken are: replacing blasting technology with cutting technologies for producing coal, and the introduction of ‘in-pit’ crushing. These coupled with adoption of environment-friendly systems such as pipe belt conveyors for transportation of coal to silos or railway sidings for loading in rail wagons or trucks will help the sector. For ensuring consistent quality, coal companies can go in for online analyzers.
In addition, there is a need to transition to pan-India use of only washed coal. This would require introduction of global practices in coal-washing and construction of washeries on a fast-track basis in engineering procurement and construction (EPC) mode. It would also require limiting the age of washeries to maximum 10-15 years keeping in line with the changes in coal washing technology globally.
Lastly, but most importantly, we need to take steps to improve the ESG quotient of the coal mining industry, so as to attract global financial institutions to consider investment in coal projects just as any other energy segment.
India’s push to raise production of natural resources to revive economic growth also comes at a time when the window for fossil fuels is closing and the global energy investment landscape is rapidly evolving, with a focus on ESG investing.
How will India then attract overseas investments?
India’s focus on ramping up production of fossil fuels and other natural resources does not necessarily mean that it loses out on the ESG front. ESG does not mean ‘end of business’. In fact, it is a prescription, which if adhered to or complied with in full, means increased funds for a business.
India has its laws in place since many years which regulate environmental norms, social norms and corporate governance. India’s Achilles heel has been the implementation or execution of the laws and statutes. Extraction of natural resources or fossil fuels has to be henceforth done in a socially and environmentally responsible way. India’s business scenario keeps evolving in line with global best practices. As a nation, we only need to ensure that we “walk the talk” to make the cut for ESG investors.