Who will bid for India’s newly auctioned coal blocks?

Last Thursday, even as the Indian government talked up its auctions for commercial coal mining, the coal mining industry seemed less excited.

“I do not think foreign companies will come in,” said a former head of the Indian operations of a global coal mining company. He did not expect many Indian companies to participate either. “These will go to an Adani or Thriveni (Earthmovers). The market is basically a duopoly now.”

This lack of interest is intriguing. Coal demand is dipping globally. Countries like India and China are the last big markets for coal. Global coal miners, with their traditional markets shrinking, should be mulling expansion into India.

Local companies should be interested as well. To attract bidders, the Indian government has almost done away with eligibility parameters. Previous bid documents, like that for Mahanadi Coalfields’ Siarmal coal block, sought both technical and financial eligibility. Prospective miners, said the tender released towards the end of the last financial year, should have removed at least 25 million cubic metres of overburden in seven years from no more than 5 opencast mines. And wanted net worth and turnover to be higher than ₹287 crore and ₹862 crore.

The latest tender document, however, has no such conditions.

All it wants is for bidders to be registered in India; bars those who have won coalmines under captive auctions and those who have been convicted of offences relating to coal block allocation. “Take a look yourself,” said the former head of the coal miner. “They have done away with all conditions.”

Why India Wants To Sell

Why India’s Bharatiya Janata Party-led National Democratic Alliance government wants these auctions is easier to understand. It is trying to reduce India’s bloated coal import bill — In 2018-19, importing 235.2 million tonnes of coal, the country paid ₹1.7 lakh crore.

That is one reason why Coal India has been told to boost production from the current 600 million tonnes to 1 billion tonnes by 2024. Commercial coal mining was expected to reduce that import bill further. Now, as India’s slowing economy gets additionally battered due to Covid lockdowns, the government has a new, altogether more urgent reason for holding these auctions. Badly cash-strapped, it needs to raise fresh funds. Coal block auctions – like the impending privatisation of Bharat Petroleum Corporation Limited – are one way to raise money.

Accordingly, India has put 41 coal blocks — in Maharashtra, Jharkhand, Odisha, Madhya Pradesh and Chhattisgarh – up for auction. These, home minister Amit Shah claimed, will create over 2.8 lakh jobs, attract capital investment worth ₹33,000 crore and generate annual revenue of ₹20,000 crore for the state governments.

At this time, these numbers looks implausible.

Why foreign miners are not interested in buying

The reasons run deeper than falling solar power bids.

It takes three to four years for a coal block to start producing. In other words, these blocks will start producing around the time Coal India hits its 1 billion tonnes target. It’s not clear if India can absorb all this coal. Compounding matters, India is also making simultaneous pushes on gas and renewables – both of which compete with coal for power generation.

Further, few of these coal blocks have statutory clearances. Seven have environment clearance. Six have forest clearance. Land has been acquired for no more than twelve. This exposes miners to the same messy political economy that undid Thiess, the Australian coal mining major, in India.

“There is zero interest from Australian coal mining firms to invest in India,” says Tim Buckley, director at Australia’s Institute For Energy Economics and Financial Analysis. “Australian coal miners are struggling for their own survival. They have zero cash and zero interest in taking the least attractive coal deposits in India, along with all the bureaucratic risks that would be involved.”

Covid puts a final nail in the coffin. “Before buying a block, miners need to do due diligence,” said the the former head of the coal miner. “But who will come? Covid cases are rising steeply in India. There are no international flights in any case.”

And yet, the government wants to auction these blocks on 18 August, 2020. The timing of these bids suggests, he said, that the government wants these to go to local companies.

Will local companies participate?

Local companies, however, face all these challenges too.

Between Coal India’s expansion and India’s aggressive plans for gas and renewables, demand projections for coal are uncertain. The lack of statutory clearances is a problem as well. “In today’s scenario, banks are not keen to fund projects where there is no environmental clearance nor land available for mining,” added B Prabhakaran, the owner and managing director of Thriveni Earthmovers. In such a scenario, mining industry experts say two kinds of local companies will participate in these auctions. One set will be companies with downstream factories, seeking an alternative to Coal India’s often low-quality coal.

The other set, said the former coal miner, will be a handful of local companies with political capital and deep pockets. “Some of these blocks, especially those in Odisha, are very large.” All these 41 blocks might not be sold – but politically-connected firms will try to pick up 3-4 of these good ones each.

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