Coal India to Outsource Mining Projects as Supply Pressures Drag on Power Industry

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). For the past year, Indian government energy authorities and companies have been interacting at national, provincial, and company levels to create some sort of forward-looking assurances for energy project planning, as the country looks to fulfill enormous generating targets through 2020. The Harmonization of engineering production resources, regional power production facilities, and the enabling feedstock supplies has been mulled and fought over in the robust Indian democratic manner, where conflicts of local and vested interests are sometimes addressed in somewhat more than forthright terms.

Running parallel to these efforts is the mid-June decision by Coal India (CIL) (Calcutta) to invite global/international bids for the development of three new mines. This is a departure for the coal industry, which, with the approval of the coal ministry, will set a trend for future projects in the coal mining sector.

One of the factors behind this move to open up bidding is that power generation at the Talcher super thermal project is in danger of grinding to a halt due to a lack of adequate supplies from CIL's Mhandi Coalfields (MCL). About 280 million tons, or 80% of India's 350 million ton annual coal production is used as feedstock by the power industry.

The successful bidder for the three new mines will be awarded the integrated mine development project on a turn-key basis. The Bhubaneshwari and Kulda mines have an estimated yield of ten million tons per annum and the Kaniha mine is estimated at 3.5 million tons per annum, providing the integrated project with a total resource of 24 million tons per annum. The mines have reserves of 'E' And 'F' grade/power grade coal suitable for thermal power station fuel feed.

Sources close to the project told the Economic Times India that global sourcing of integrated mine development has been opted for, as it will significantly cut down the required investment in the project, in addition to bringing in the most efficient technology.

Because the successful bidder will bring into the country advanced equipment to develop the mines, CIL will be able to slash mine development costs by up to 60%. If CIL were the sole developer, a 10-million-ton-per-annum mine would need an investment of about $220 million. Outsourcing will bring the internal cost down to about $65 million.

The turn-key contract to be awarded will cover blasting, removal of overburden, and the carrying, transporting, and dumping of the coal. Previously, CIL has only outsourced sections of a project. At South Eastern Coalfields' Gevra mines in Chattisgarh, for example, only transportation of the coal was outsourced.

In the same week that the three-mine outsourcing project was announced, India's energy planning commission asked the coal ministry to look at the possibility of procuring imported coal through long-term contracts, in order to end the existing practice of buying the same from spot markets where relatively higher prices are common. Industry sources said that this request signaled that the commission seems to have finally given up on CIL's stepping up coal production, so as to bridge the ever-growing domestic demand-supply gap.

The commission said that long-term import contracts would also encourage capacity expansion of ports and other related infrastructure, where existing bottlenecks limit coal import volumes. The virtues of e-marketing, auctions, and the holding of stocks, rather than committing the entire coal output to users under direct long-term agreements, were seen as possible ways to curb demand by raising prices. However, these methods would only work if coal supply were adequate to meet demand in the country, said the commission.

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