Captive coal output rises 35% in H1 as Coal India falters

In early October, the Union coal ministry amended the Mineral Concession Rules, 1960 to allow sale of up to 50% coal produced from captive mines, after meeting the requirement of the end-use plant linked with the respective mines.

Coal production from captive mines have recorded an impressive growth rate of 34.8% year-on-year in the first half of the current fiscal year, with these blocks producing 33.2 MT of the key fuel. Though captive coal still constitutes only 10.5% of the total domestic coal production, recent steps by the government such as allowing sale of 50% captive coal in the open market will likely encourage these miners to ramp up production further.

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

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

A coal industry veteran told FE that prospects of sale in the open market will encourage higher production from captive mines, as under the earlier system, these could only produce coal as per the needs of the respective power plants to which they were tied up with, and “lower requirement at the power plant led to sub-optimal use of captive coal mines”. The government, in FY20, had amended relevant Acts to remove any end-use restrictions on miners, virtually abolishing the concept of captive coal mining.

Coal assets are now being auctioned off for commercial mining, with no end-use restrictions, through the new market-determined revenue share model that replaced the fixed fee/tonne regime that had earlier turned off private investors. Through the two such auction tranches conducted since November 2020, the government has found takers for 27 coal blocks (19 in first tranche, 8 in second). The coal ministry has recently launched the third tranche of commercial coal auctions, offering 88 mines with geological reserves of 55 billion tonne.

According to data from the Coal Controller’s Organisation, 126 of the 204 blocks, cancelled by the apex court in September 2014, have been reallocated (45 auctioned off and the remaining allotted to PSUs on a nomination basis) and just 34 of them were producing coal at the end of FY21. The main reasons why reallocated blocks are yet to commence production are attributed to delays in receiving forest clearances, mining-safety permissions, land acquisition and other ongoing litigation.

After the Supreme Court cancelled 204 out of the 218 captive coal block licenses saying these were allocated in an illegal and arbitrary manner, production from these mines crossed the output level before the court’s decision only in FY19 with production of 54.9 MT, surpassing the 52.7 MT mark recorded in FY15 when the licenses were cancelled. While 40 captive blocks were operational in FY15, the number of such active mines were 25 in FY19.

Captive coal mines are increasing output at a time when scarcity of coal has led to electricity supply shortages across several states, underscoring the significance of the much-tainted fuel source abundantly available within the country. Reiterating that the coal will continue to play a major part in the country’s energy mix for next 35-40 years, Union coal minister Pralhad Joshi recently said that India is currently one of the lowest in terms of per capita consumption of power as compared to the developed countries, and electricity demand here is expected to double by 2040.