Captive coal production in H1 rises by 35% as Coal India falters

In early October, the Union Ministry of Coal amended the Mineral Concession Rules, 1960 to allow the sale of 50% of coal produced from captive mines, after meeting the requirement of an end-use plant attached to the respective mines.

Coal production from captive mines has registered an impressive year-on-year growth rate of 34.8% in the first half of the current financial year, with these blocks producing 33.2 MT of the major fuel. Although captive coal still accounts for only 10.5% of the total domestic coal production, recent steps by the government such as allowing 50% captive coal sale in the open market will encourage these miners to increase production further.

Captive coal production has seen a steady rise since the nadir hit in FY16 due to the cancellation of 214 blocks by the Supreme Court in 2014, following an adverse CAG report that highlighted arbitrariness in allocation . In April-September in the current financial year, coal production by captive mines maintained the accelerated pace accumulated in recent years, while the country’s total coal production (read production) Coal India and its subsidiaries) declined (see chart on Pg1). The trend is likely to pick up in the second half of the year.

In early October, the Union Ministry of Coal amended the Mineral Concession Rules, 1960 to allow the sale of 50% of coal produced from captive mines, after meeting the requirement of an end-use plant attached to the respective mines. The government claimed that over 100 captive coal and lignite blocks are likely to benefit from the move with a peak rated capacity of over 500 MT per annum. The Mines and Minerals (Development and Regulation) Act was also amended in March, 2021, laying the groundwork for sale of coal on commercial basis from captive mines. In February, 2019, the cabinet had allowed captive production up to 25% of the production. Coal mines in the open market.

A coal industry veteran told FE that open market sales potential would encourage higher production from captive mines, as under the earlier system, they could only produce coal according to the needs of the respective power plants from which they were connected, and “the lower requirement in the power plant resulted in sub-optimal use of captive coal mines”. The government, in FY20, had amended the relevant Acts to remove any end-use restrictions on miners, eliminating the concept of captive coal mining.

Coal assets are now being auctioned for commercial mining, without any end-use restrictions, through a new market-determined revenue share model that replaces the fixed fee/tonne regime that previously locked private investors. Used to give Through two such auction phases conducted since November 2020, the government has found buyers for 27 coal blocks (19 in the first tranche, 8 in the second). The Ministry of Coal has recently launched the third tranche of commercial coal auctions, offering 88 mines with geological reserves of 55 billion tonnes.

According to data from the Coal Controller’s Organisation, out of 204 blocks that were canceled by the apex court in September 2014, 126 have been re-allocated (45 were auctioned and the rest were allotted to PSUs on nomination basis) and among them Only 34 were producing coal. At the end of FY21. Delays in obtaining forest clearances, mining-safety permissions, land acquisition and other ongoing litigation are the main reasons why production is yet to start in the reallocated blocks.

Out of 218 captive coal block licenses canceled by the Supreme Court, 204 were allotted illegally and arbitrarily, with production from these mines only producing 54.9 MT in FY19 before the court’s decision. With a production of 52.7 MT, it crossed the production level with Rs. Marks recorded in FY 2015 when licenses were cancelled. While 40 captive blocks were operational in FY15, the number of such active mines stood at 25 in FY19.

Captive coal mines are ramping up production at a time when coal shortages have resulted in reduced power supply in many states, underscoring the importance of an abundantly available fuel source within the country. Reiterating that coal will play a major role in the country’s energy mix for the next 35-40 years, Union Coal Minister Pralhad Joshi recently said that India currently has the lowest per capita consumption of electricity. Electricity demand in developed countries is expected to double by 2040.