Miners warn of 80-mt iron ore deficit on lease extension delay
The iron ore mining sector faces a challenge a little down the line, as licences of 250 mines are to lapse in three years from now. Only 50 of these are in operation, producing 80 million tonnes (mt) annually, a little over 80 per cent of these in Odisha. This 80 mt supply could be in danger, as no formalities have begun to extend the lease or validity. With steel companies in expansion mode, supply concerns could emerge. The deficit in domestic ore supply after March 2020 is seen at around 80 mt and this could put the brake on expansion in steel making; the government targets an ambitious 300 mt annual output by 2030.
In Odisha, the largest ore producing state, 17 mines are set to run out of operations. Their combined annual capacity is 66 mt. The state's iron ore is predominantly used in value addition within the country, as opposed to the export-oriented ore in Goa and Karnataka.
No road map is ready yet to auction the mine leases going to lapse. “We had earlier requested the Government of India to extend the validity of such mines. There will be chaos if these thrown out of operation. Steel plants without captive ore sources will suffer the most; they will have to fall back on import,” said R K Sharma, secretary-general, Federation of Indian Mineral Industries. By 2020, the domestic iron ore requirement is pegged at 234 mt, projected to escalate to 447 mt by 2030, when the aim is to reach steel production of 300 mt.
A spokesperson at Essar Steel was far more optimistic, “The government is fully seized of the matter and has already initiated the process to auction iron ore mines and also get these operational. Also, many of the steel companies have captive mines to meet their requirements either fully or partially. Further, in addition to state-owned companies, private miners also meet the requirement of steel companies. In any case the import option is always available if the prices are favourable.”
Under the amended Mines and Minerals (Development & Regulation) Act, the validity of existing non-merchant mines have been extended till end-March 2020 and of captive leases till 2030. Blocks going for auction need to, under the rules, be explored at least up to the G2 level; most of the leases expiring in 2020 have not been. Rule 22 of the Mineral Auction Rules, 2015, stipulate completion of detailed exploration at the G1 level and to prepare a detailed feasibility report over the entire area under the mining lease.
Crisis point
Licences of 250 mines (50 operational) are set to lapse in three years from now
Expiry of mining licences to create iron ore deficit of 80 million tonnes in the country
Iron ore requirement in 2020 pegged at 234 mt, as steel output to cross 150 mt
Political vendetta, says former minister of charges in coal scam case
Former Union Coal Minister Dilip Ray claimed on Wednesday he was a victim of 'political vendetta' by the then UPA government, after a special CBI court framed charges against him for his alleged involvement in coal block allocation case.
Ray, however, said he has complete faith in the judicial system claiming his innocence in the coal scam.
"The scam ridden United Progressive Alliance (UPA) government out of sheer political vendetta pressurised the CBI to dig out something to malign me and its predecessor NDA government headed by Atal Bihari Vajpayee and an FIR was registered in September 2012," said Ray, who is a Bharatiya Janata Party (BJP) MLA in Odisha.
The case pertains to the alleged irregularities in Brahmadiha coal block in Jharkhand to Castron Technologies Limited in 1999 while Ray was a Minister of state (Independent charge) for coal in the erstwhile National Democratic Alliance (NDA) government.
"While I was the minister, BJP MP P.K. Agarwal had brought the coal block allocation proposal. I had sent it to the ministry for re-examining it. The Central Bureau of Investigation (CBI) has erroneously alleged that in view of my endorsement of his representation for re-examination, Castron owned by Agrawal was allotted a coal block," said Ray in a statement.
He said Screening Committee recommends allotment of coal blocks where he wasn't a member of it then.
Ray also said that grant of this coal block in question was in fact recommended by the Jharkhand state government in favour of Castron, as it was an abandoned coal block of yester years from which coal was regularly being looted by the coal mafia.
The state government wanted legal utilisation of this block, he added.
"I was advised by my legal team not to seek a discharge (which would have only delayed the proceedings) and to volunteer myself for a speedy trial since I have complete faith in the judicial system and I have done nothing wrong in nearly four decades of my public life," said the BJP leader.
--IANS
Tata Sponge Iron March qtr profit rises
* March quarter net profit 212 million rupees versus profit 130.7 million rupees year ago
* March quarter total income 1.95 billion rupees versus 1.65 billion rupees year ago
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Commercial coal mining - A perspective on India's proposal
The permission to sell coal in the open market, which ideally should imply freedom to price products based on market demand and supply, has turned out to be a debating point for policy-makers.
The Ministry of Coal has recently published a white paper for public discourse and suggestions on policy initiative that purports to bring in private participation in commercial coal mining. “Commercial” coal mining is a bit of a misnomer here as all coal mining activities by definition are commercial, but in India this has come to define the right of a coal miner to sell the products in open market. Here again, the permission to sell coal in the open market, which ideally should imply freedom to price products based on market demand and supply, has turned out to be a debating point for policy-makers. So, the essential features of a free market that define a commercial activity have been contextualized in Indian coal sector through deep impact of nationalization of the industry in the early 1970s.
The so-called commercial coal mining itself is not a new concept either. Prior to de-allocation of the coal blocks by the Supreme Court of India, and indeed even after the new legislative framework has been approved by the Indian parliament, several coal blocks were and have been allotted to state-owned entities for commercial mining. A closer look at these entities and their strategies for coal mine development indicates that contract miners are the ones who operate the coal mines and then these state-entities bargain with the potential buyers of coal for a piece of rent from the price of coal they sell. So, while private sector ownerships of these coal mines have been restricted, the private sector participation has not been, from mine development, construction and all the way to transportation and taking the products to the market.
What is new in the Ministry’s proposition is allowing private sector ownership. The draft policy paper proposes no restriction on pricing, even though for purposes of revenue share, which is also the bidding criteria for allocation of coal blocks in the first place, a floor of 20% premium over Coal India Limited’s prices for comparative coal quality has been proposed. There are other provisions for flexibility, such as permission to modulate coal production within a limit of 70% of the approved peak rated capacity. While the merits of these propositions are being discussed, it is important to question the fundamental idea of commercial coal mining at this time.
There is a revolution that is sweeping the energy sector globally and in India. The balance now seems conclusively tilting towards renewable energy. And, this development is not entirely due to government subsidies but because these sources of energy are financially viable on their own. Of course, there are some concerns about quality of supply and back-up but there again a lot of investment is being made, for example, for developing grid-size storage technologies for solar power. The next 3-5 years are likely to witness epochal shift in the way energy is generated and distributed. Coupled with these developments, coal mining in India has witnessed lower than expected demand. CIL was struggling to meet the demand just a few years ago but now they are increasingly finding tougher to dispatch the coal produced, resulting in building up stockpiles. But in spite of this, there has not been any indication yet on relenting on their pursuit for a 1 billion tonne production by the terminal year of the current five-year plan. This begs the question then of demand from commercial coal miners. Who would buy coal from a commercial miner with a 20% premium over market price when they can get coal from CIL itself? And, thus also arises the associated question of being able to get a premium when there is over supply in the market?
Then there is cost side of the story. While the list of coal blocks for commercial coal mining is not yet published, it may only be speculative to estimate costs. But it may well still be stated that the costs of coal mining may be relatively lower than Coal India Limited considering private sector efficiencies. But the margins may have to be distributed between the miners and the government accounting for the revenue-share or an auction premium, depending upon how these coal blocks are auctioned off. Would the available margins be able to justify investment in coal mining ventures that have tuned out have risks of obtaining social license to operate, including land acquisition, rehabilitation and resettlement, risks of mine permissions such as environmental clearances, and infrastructure development constraints?
Answers to several of these questions are likely to be in the location and geo-technical features of the coal blocks. Demand and price risks, and the risks in coal supply logistics can be assessed from the location of the mine and its likely markets. The margins and returns on investment can gauged by the geo-technical features which impact the ease and hence, costs of mining. To attract investors, it is therefore, important that the government chooses coal blocks that promise scalability, higher degree of geological information, lower risks of stakeholder management and shorter gestation period to get the first tonne of coal to market.
The key reflection of expected returns would also be the degree of competition for these coal blocks. The competition for the most recent, the fourth, round of coal blocks for non-regulated sector was low and response for the blocks offered was at best lukewarm. While the past need not reflect the current level of interest, expectation of future of coal, more specifically the coal-based power generation, is certainly going to impact the prospects. The real concern lies here. That Central Electricity Authority (CEA) has warned that coal-based thermal power plants are expected to see a drastic fall in capacity utilization to as low as 48% by 2022, which has been consistently declining for the last 3-4 years, as additional non-thermal electricity generation capacities get commissioned, is more likely to deter enthusiastic participation.
All said and done, markets are the places for real test of an idea. It is, therefore, wise to wait and watch if commercial coal mining is such an idea whose time has come or has passed by.
Regards
Anurag
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