Indians Dominate Public-Private Partnership Coal Mining Opportunities

BRISBANE, Australia - May 24, 2013 - PRLog -- LancoInfratech Limited is one of the larger Indian private power generation companies with an operational capacity of 4,732MW. It is expecting to add another 4,636MW within the next 4 years. A number of its new plants are already in advanced stages of construction.

The government has proposed public-private partnerships in mining as a way to increase domestic coal production, encourage private sector participation and facilitate the entry of foreign firms, particularly in underground mining. It is seeking to achieve this through the mine-developer-operator (MDO) model in which the mine development and operations are outsourced but where Coal India Limited (CIL) (or a Government entity) retains ownership and the marketing rights.

Government has formally endorsed MDO as the public-private partnership model for mining.

“The Union Government has envisaged that one of the ways forward to reduce the dependence on imports is to devise a PPP policy framework with CIL as one of the partners in order to increase the production of domestic coal for supply to power producers and other consumers,” the government said in a recent statement recently.

The MDO policy will be within the framework of the Coal (Nationalisation) Act 1973, where only the government is allowed to market coal.

Although MDO seeks to increase the participation of foreign companies, Indian companies are likely to remain the primary players in the sector.

Certainly we have every advantage as big Indian companies in terms of logistics and things like overall project management,” the Lanco executive said.

The executive feels that several unique features of the system will make it difficult for foreign players to compete with Indian giants in mining domain.

“Unlike in other countries, here every single process associated with mining is a time consuming one. In addition, the system is more complicated and you have to deal everything separately,” the executive said.

The executive noted that managing processes such as environmental clearances and forest clearances in an Indian context needs special expertise. Norms and regulations vary from one state to the other.

LancoIntratech was recently appointed by the Steel Authority of India (SAIL) as its mine developer and operator (MDO) for its Tasra coal block project. For the Tarsa mine, Lanco will have a target of producing 4mt of coking coal a year. Lanco will sell the entire coal to SAIL at a CIL determined price.

As per the PPP policy, land acquisition, resettlement and rehabilitation at Tasra coal block will be the responsibility of Lanco.

“Land acquisition, resettlement and rehabilitation are other key areas where foreign participants can have big time troubles as these are issues which should be politically viable in India more than anything,” the executive explained.

For the Tasra block, Lanco will have to negotiate rehabilitation and resettlement of about 4,000 people. It has yet to acquire about 500 hectares of land of the total project requirement of 900 hectares.

The executive feels that LancoInfratech is likely to win at least two more coal blocks off CIL, which were open to international competitive bids under the MDO model.

CIL, which is sourcing about 50% of its production through the MDOs, is expected to outsource about 60-80mt of additional production through the 12th five year plan ending 2016-2017.Recently a CIL source confirmed to Indian Coal Report that the company had shortlisted 10 coal blocks for PPP model of mining.

The executive believes that foreign players are unlikely to win any of the MDO bids on their own.

“I know that some of them [foreign companies] are interested in bidding for some of these blocks.  Some might have bid as well. But I don’t think anybody will ultimately win over any project,” he said.

The executive also feels that foreign players will not be able to bid as low as Indian companies, who will be able to take advantage of the relatively cheaper labour pool.

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