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Indian captive coal, iron-ore mining hit by fresh uncertainties

India’s questionable mining industry policy framework has been dealt a double whammy of uncertainty over captive coal and iron-ore mining.

In the case of the steelmaking industry, the Mines Ministry has ruled that the allotment of captive iron-ore mines to domestic steel companies was anticompetitive, while the Coal Ministry would be clamping down on power generating companies for not passing on the benefit the sector gets from captive coal blocks to consumers of electricity.

The Mines Ministry, in a note submitted to the Union Cabinet, stated that the Steel Ministry’s moves to seek captive iron-ore mines for domestic steel producers would not ensure optimal use of these mines.

The Mines Ministry has maintained that the selective allocation of captive iron-ore mines to steel producers would be anticompetition and not ensure a level playing field in respect of the various kinds of private and public investments required for steelmaking capacity growth in the country.

Besides, the trend towards captive mining was a hindrance to development of standalone mining resource companies, be it domestic or foreign, the Ministry stated.

This comes at a time when, barring two domestic steel producers, Tata Steel and Steel Authority of India Limited, which had captive mines, other producers, such as JSW Steel and Essar Steel, were largely dependent on merchant sourcing of raw materials - either from domestic mines or imports of iron-ore.

Citing recent exits of global steel majors like Posco and ArcelorMittal from mega projects in India, the Mines Ministry said that ensuring the development of ultra-large mining projects by domestic and foreign resource majors specialising in standalone mining, thereby ensuring raw material supplies for downstream value addition, would be the key in attracting foreign investments in steel production, rather than the extension of unfair advantage to existing producers by the allocation of captive mines.

Captive iron-ore mining was falling out of favor within a segment of the Indian government, and the Coal Ministry was working on a legal clampdown on power generating companies forcing them to either stop mining captive coal blocks allocated to them, or to surrender the assets for failing to pass on benefits of captive raw material sources to electricity consumers.

Several private power generating companies have been charged by the Coal Ministry for selling electricity on a merchant basis to power trading companies at a higher price and not meeting contractual supply obligations, at comparatively lower tariffs, with power distribution companies.

The Coal Ministry, in a communication to several provincial governments, has directed the provincial governments to incorporate a legal clause in mining leases that would see mining stopped, or the taking back of coal blocks, if power companies did not adhere to the agreements concerning supplies and tariffs contained in power purchase agreements between the private power producer and the distribution companies, which were operated and controlled by the provincial governments.

The Ministry has argued that few imported coal-based power companies had been permitted to pass through the higher cost of imported feedstock to consumers, and that the rationale of allocating captive coal to power producers was to ensure the benefit of lower electricity tariffs was passed on to consumers, which was not being adhered to by several power companies.

Between 1993 and 2009, the Coal Ministry had allotted captive coal blocks to 29 power companies, including Essar Power, JSW Steel, GVK Power, Jindal Steel & Power, Tata Power, Hindalco Industries, Adani Power, GMR, Lanco and Reliance Energy.

Source: www.miningweekly.com