Business
Transparent process to allocate coal mines is likely to involve an auction, just as the government did for telecom spectrum
Updated : Mar 19, 2018, 05:24 AM IST
The recent cancellation of coal block allocations provides an opportunity for the government to reform the process of awarding coal mines in the country, credit ratings agency Standard & Poor's said in a report titled 'Supreme Court Ruling Could Ignite Reforms In India's Coal Sector'.
"The Supreme Court ruling could lead to an improved process for allocating coal mines and boost the supply of coal in a country that faces a severe shortage of the fuel," said Mehul Sukkawala, a credit analyst with S&P said.
Last week, the court cancelled most of the 218 coal blocks the government had allocated between 1993 and 2010. The court observed that the allocation was arbitrary, illegal, and resulted in unfair distribution of national wealth.
The ratings agency said a transparent process to allocate coal mines is likely to involve an auction, just as the government did for telecom spectrum.
"E-auction of coal would ensure transparency and no undue advantage would be passed on to certain individuals or companies. The government, however, must recognise the different requirements of coal users while auctioning blocks," R K Goyal, managing director of Kalyani Steels, said.
He said quality and quantity requirements of power, steel and sponge iron company or cement companies is different so blocks could be auctioned accordingly.
It will be challenging for the government to devise a strategy or plan of action for the coal mines that will include these requirements.
"Transfer of ownership is the biggest issue the government needs to tackle. Majority of 40 operating mines are run by mining development operators (MDO). It remains to be seen now if ownership of block changes will the government have same MDOs or will MDOs move to CIL, and if they move will CIL accept them," Prakash Duvvuri, research head at Ore Team, said.
This would be biggest-ever auction of natural resource in India and which companies are allowed to participate and what conditions are prescribed for the auction will remain key. Duvvuri said most market participants were expecting the auction to happen on the basis of CIL prices.
Other analysts said the government should conduct separate auctions for independent power producers and captive power producers wherein bidding could be based on tariffs and royalty, respectively.
The government could also extend the solution for coal miners to mining of iron ore, bauxite and other minerals. "Doing so can help the country take a big step toward resolving issues plaguing the mining sector for the past few years," the S&P report said.
Auctions combined with a streamlined process for getting environmental clearances and approvals for land acquisition would give companies the confidence to invest and revive their long-pending projects.
The ratings agency cautioned that the cancellation of coal blocks increases near-term uncertainty for the operations and investment plans of companies that were either allocated the mines or were expecting to source coal from them. "It could also hurt the significantly improved investor sentiment in India following the change in the government earlier this year," said Sukkawala.