Privatization is the way forward to regulate coal industry hit by rising prices and shortages, experts say
Opening up the coal industry to the private sector will help regulate the segment while making the country self-sufficient in terms of domestic fuel needs.
With coal prices rising and supply shortages following Indonesia’s disruptions, the private sector appears to be a viable option for the country to emerge from a looming crisis, experts and industry leaders say. ‘industry. “Private sector participation is always welcome, as more participants would not only improve the offering, but also infuse competition,” said Vinaya Varma, MD, mjunction Services Ltd.
However, at present, private sector participation can only take the form of increased production from captive blocks. “It will take some time for commercial miners to start production from allocated blocks. In fact, captive coal production has already shown a healthy growth of more than 32% year-on-year to around 62 million tonnes through December 2021,” Vinaya Varma told Financial Express Online.
Coal shortage easing a bit, for now
The coal shortage that the country’s power plants faced from September to October 2021 has eased somewhat, mainly due to lower electricity demand in winter and increased coal production . The stockpile of coal at power stations rose to 23 million tonnes as of December 27, 2021, from 9 million tonnes as of October 26, 2021, according to the Central Electricity Authority of India (CEA). But the coal ministry will need to devise a strategy to increase production in the country itself before demand peaks again.
Earlier in 2020, Prime Minister Narendra Modi opened up the coal industry to the private sector after removing restrictions on the end use of coal by enacting the Mineral Laws (Amendment) Ordinance, 2020. This aimed meet demand for dry fuel in downstream sectors by allowing wider participation in coal mine auctions. Prime Minister Modi had said that India had the fourth largest coal reserves in the world and the country should become a net exporter of coal.
In order to attract investment in coal mining, the government has also reduced upfront payments, relaxed payment schedules and offered government-shared revenue discounts for early production. India will spend 500 billion rupees to create infrastructure around coal mining and the country aims to gasify 100 million tonnes of coal by 2030.
Coal from Indonesia accounts for almost half of India’s annual coal imports, and with the country imposing a month-long coal export ban on January 1, India has seen a sudden spike in prices as well than a shortage of supply. Even though Indonesia started easing restrictions on January 20, with 139 companies allowed to ship the fuel overseas, this has already had an impact on prices and market volatility has created uncertainty for Indian buyers. Also, for this reason, the shortage will most likely continue in January and February, as it will take time for shipments from Indonesia to return to normal levels.
According to consultancy Argus Media, prices of popular grade coal GAR 4,200 kcal/kg (NAR 3,800 kcal/kg) reached an all-time high of $154.21/t on October 22, 2021 after an all-time low of $22.40/t on September 11. 2020. The market was last valued at $60.41/t fob Kalimantan on December 31, 2021.
Indonesia’s embargo on coal exports has caused industry players and experts to rethink India’s dependence on imports and opening up the sector to private players is a promising step in this direction. However, it will take time to show results. Madan Sabnavis, Chief Economist, Bank of Baroda, said: “Private participation will help, but it would take time for production to materialize. Private players have shown interest, which should help increase supply. However, the long-term economic viability of using coal as a fuel is the main issue. Also given the shift in focus to renewables, interest may be limited as potential investors will weigh the options.
Even when private entities are now allowed to enter the industry, a lot of regulatory work is blocking the process, a private sector executive who wishes to remain anonymous told Financial Express Online.
In addition, privatization will further enhance competitiveness in the segment. “While in the short term Coal India will lead the show as it sets a price benchmark, going forward prices will be more competitive,” Madan Sabnavis said.
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