Private coal miners to face headwinds from India’s accelerated transition towards renewables: ICRA

NEW DELHI: The opening up of the coal sector for private commercial mining, for which the first list of mines have been published by the Central Government on June 18, 2020, is an important reform in ensuring India’s energy security. However, its rollout has been at a time when economic outlook remains uncertain amid the Covid-19 pandemic, leading to weak investor sentiment. In addition, there is a structural shift in India’s energy mix towards renewables. As per ICRA’S latest report on the coal mining sector, the domestic coal demand is estimated to increase at a modest compounded annual growth rate (CAGR) of 2.9 per centbetween FY2021 and FY2027. This is much lower than the CAGR of 5.2 per cent registered between FY2013 and FY2020. Given Coal India Limited’s ambitious target to reach 1 billion tonne coal production by FY2024, private commercial miners would face stiff competition in gaining a foothold in the domestic market. Elaborating further, Mr. Jayanta Roy, Senior Vice-president & Group Head, Corporate Sector Ratings, ICRA, said, “In a market, where an overwhelming majority of the domestic supply is controlled by Coal

India and Singareni Collieries, affordability, dependability and consistency in coal quality would remain critical drivers that would determine if the existing coal customers decide to partly shift their sourcing to private commercial coal miners

Experienced players, who have the knowhow of efficiently operating a coal mining business, stand a better chance in making a dent in the market share of the existing players Over the long-term, we believe that coal consumers are likely to benefit from increased competition in the domestic coal mining industry.”

Around 94-95 per cent of Coal India’s overall production comes from opencast mines, having attractive stripping ratios, which have an inherent cost advantage over their peers Consequently, the operating cost for Coal India’s opencast mines reportedly stood at a competitive Rs 833 per metric tonne (MT) in FY2019.

Moreover, out of Coal India’s 582 million tonne (mt) of despatches in FY2020, around 89 per cent has been supplied under long-term fuel supply agreements (FSAS) where the realisations remain very competitive.