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Singapore — India's move to open its coal sector could attract global mining majors and help boost domestic output, with analysts believing peak demand is still years away in a country where coal contributes more than half the energy needs.

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However, some concerns around coal quality and regulatory hurdles remain.

New Delhi's decision to allow 100 percent foreign direct investment in coal mining will not only help bring more competition in a sector dominated by the government for decades, it could potentially save billions of dollars in foreign exchange outflows amid the country's dependence on imports, analysts and senior officials told S&P Global Platts.

Although the move has come as a surprise to some analysts because India is aiming to move towards a gas-based economy, some said the country can't afford to reduce its dependence on coal sharply, given plentiful availability of the energy resource at home.

"The government's decision to allow 100% FDI in coal mining will attract global miners like BHP and Anglo American," Pradeep Mittal, executive vice chairman and CEO of Essar Power, told Platts. "This will result in FDI inflows along with updated technology and increase India's coal production."

India has been looking to move away from coal imports and boost domestic production to 1 billion mt by 2024-2025. The government had initially aimed to produce that amount as early as 2020, but a shortage of railway rakes and a lack of other infrastructure affected those plans.

India imported 235 million mt of both coking and non-coking coal in fiscal year ending March 2019, compared with 208 million mt in the previous year.

Mittal added that plentiful imports of thermal coal is leading to foreign exchange outflows of $18-$20 billion per year.

"Coal production in India is not increasing to keep pace with increasing demand," Mittal added.

India's coal import and production


Coal to India's domestic market is mostly catered to by state-owned miners Coal India Ltd. and Singareni Collieries Company.

In fiscal year 2018-19 (April-March), Coal India achieved an output of 606.9 million mt, an increase of 7% year on year. CIL has set a production target of 655 million mt for the current fiscal year.

During the last fiscal year, Singareni Collieries achieved an output of 64.4 million mt, up 3.8% on the year. The target for the ongoing fiscal year has been set at 70 million mt.

"Private companies who have held coal blocks have had significant challenges in developing these as they have been unable to raise capital, or have had operational expenditure issues. Allowing foreign companies to develop these could realize more development of coal blocks than domestic companies could do," said Matthew Boyle, lead coal analyst at S&P Global Platts Analytics.

However, overseas companies will move ahead cautiously as they try to get more policy clarity and examine the potential bottlenecks they might face when they start mining operations, analysts said.

"The Indian government has been trying to get coal blocks developed for quite some time. This decision is another attempt by the government to help tap these reserves and resources," Boyle said, adding that there would be challenges for foreign miners to overcome while developing greenfield coal blocks.

However, R.P. Ritolia, former chairman of Central Coalfields Ltd., a unit of Coal India, said at an industry gathering in Kolkata that if foreign investors began mining operations in India, it could pave the way for achieving self-sufficiency in coal.


The average calorific value of coal that India produces is about 3,600 kcal/kg GAR and the ash content can go as high as 35%.

Concerns about coal quality could be a deterrent to foreign investors looking to invest in these mines, sources said, adding that setting up washeries to upgrade the quality of coal will be key to tap not only the domestic power plants, but also the export markets as and when opportunities arise.

Some industry sources said that concerns about potential delays in getting required clearances from Indian authorities were weighing on the minds of investors.

Investors were also looking for clarity on whether coal mines open for FDI would be restricted to supply only to the domestic market, or whether the output could be exported as well, sources said. Under current rules, exports are only allowed to Nepal and Bangladesh.

The debate to open up coal mines to FDI has been going on for some years. But given the increasing pressure to move away from coal and promote clean fuel, some investors will be closely examining the long-term prospects before investing.

"Even if any foreign players show interest, they may likely partner with an Indian market participant to ease the entire process," an India-based trader said, adding that tying up with local partners -- with experience of the local market -- would be crucial to succeed.

Some industry sources said that several international banks were increasingly moving away from financing coal-related projects, which could potentially create hurdles in the future.

-- Sambit Mohanty,

-- Deepak Kannan,

-- Edited by Shashwat Pradhan,