Govt working on template for CIL to outsource coal mining - Quoted in the Mint

The government is working on a “watertight” template that would enable state-owned Coal India Ltd (CIL) to outsource mining through tenders, said a person familiar with the development. The move is aimed at avoiding controversies such as the one over the allocation of coal leases.

A committee has been set up by the government, with representation from the ministries of finance, coal and mines, and the state-owned miner to help CIL outsource coal mining to mine developers and operators (MDOs), while ownership stays with the company.

 

“It has been understood that CIL doesn’t have the capacity to mine all the blocks that it has,” said the person cited above on condition of anonymity. “Also, awarding blocks hasn’t been successful, leaving the only option of outsourcing the coal mining for the blocks. To avoid any kind of problem in the process, a template is required for awarding such tenders.”

 

The allocation, rather than auction, of coal mines has become a matter of controversy after a report by the Comptroller and Auditor General of India (CAG) released last month said the giveaways had resulted in notional losses of Rs.1.86 trillion to the exchequer. CIL, for its part, hasn’t been able to cope with the growing demand for coal to generate power, causing dependence on imports to increase.

 

CIL mined only 431 million tonnes (mt) in 2010-11 against a target of 461.5 mt because of stalled projects. While it also failed to meet its target of 440 mt in 2011-12 and mined 435.84 mt, the miner has set a target of producing 468.74 mt in 2012-13 amid land and environment-related hurdles.

By outsourcing mining, CIL will gain access to high-end technology for underground mining through partnerships with global miners.

 

“Such a watertight template would leave little to contention and will even make foreign miners comfortable to participate in such tenders, given the perception of the sector today,” the person cited above added.

 

A case in point is state-owned NTPC Ltd, which has courted controversy after the MDO contract for its Pakri Barwadih mine was given to Thiess Minecs India Pvt. Ltd. Thiess Minecs is 90% owned by Thiess (Mauritius) Pty Ltd and 10% by Minecs Centre Pvt. Ltd. Former coal minister Santosh Bagrodia’s brother owns Cuprum Bagrodia Ltd, which in turn is the owner of Minecs Centre.

“The MDO was awarded through an international competitive bid,” said a senior NTPC executive, denying any wrongdoing.

 

Even the 12th Five-Year Plan (2012-17) paper on energy states: “Indian coal companies must accept the challenge of transplanting the international best practices with more effective management.”

It goes on to recommend: “CIL can have joint ventures or formulate PPP (public-private partnership) projects with appropriate terms with renowned international players to shore up the underground production level in 12th and 13th (2017-22) Plans.” S. Narsing Rao, chairman of CIL, confirmed the development and said, “The idea is to make the process (of engaging the private sector) more transparent and competitive, and learn from the best practices in other sectors. This could also help us attract more global companies.”

 

He added, “We are discussing with Union ministries, based on standing committee guidance, how experiences of public-private partnership models in other sectors such as construction of airports and national highways could be followed in CIL.”

 

The next meeting of the recently set up committee is expected shortly.

 

“We are in the process of identifying some 15-16 coal blocks and will be developing them in partnership with private contractors so that production could start faster at these mines,” Rao had said in a recent interview to Mint. “We also intend to use private contractors in a bigger way in our underground mines—a blueprint for expanding their role in extracting coal from underground mines will be ready in a couple of months.”

 

The move to seek bids for mining comes at a time when the Central Bureau of Investigation is probing alleged irregularities in the allocation and utilization of coalfields. Separately, an inter-ministerial group is looking into the allocations and recommending the cancellation of some coal block allocations.

 

Mint had reported on 18 March 2008 about significant irregularities in the Union government’s award of coal blocks to private sector firms.

 

“It will help in avoiding controversy. Turnkey project commissioning through MDO route can be an effective way for participation of private and foreign contract miners,” said Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based energy and resources-focused consulting firm. “Standardizing documents for MDO selection may serve the purpose of enhancing efficiency and transparency, as has been the result in tariff based competitive bidding in power sector.”

 

CIL had earlier flirted with the idea of reviving its abandoned mines by allowing foreign firms to start mining coal in India through joint ventures with CIL, with bidders to be ranked on the basis of their assessment of the revenue potential and the cost of producing coal from these mines. The idea failed to take off.

 

Coal demand in India is expected to grow from 649 million tonnes per annum (mtpa) now to 730 mtpa in 2016-17. Of this, the projected local availability is 550 mtpa.