Coal India: Little impact of coal mining policy in the short term but longer term can alter the dynamics significantly

Coal India

The state-run Coal India has taken a knock on its revenue from extended rainfall in the country which also reflected in its share price sliding to a year low.

Well, the future seems a little bit tough for the company as the government has decided to allow only private sector miners to participate in new coal mine auction.

It is expected that the captive power producer (most of these are cement, steel, and others) will look to acquire these mines.

As a result of the coal mining license, the demand from this non-regulated sector will be absent.

However, most of their demand is fulfilled to a large extent by import.

Out of the total import the country does, 50% import comes from the non-regulated sector.

The country produced 730.35 million tonne of coal in FY’19 while the imports were 235.24 MT.

Coal India produced 330.4 MT of coal in April-November 2019-20, registering a decline of 7.7% over 358.3 MT produced in the same period of the previous fiscal.

In Coal India there are 35 mines in which each mine has a production of more than four million tonne per year.

So they are responsible for almost 75% of Coal India’s production.

India has one of the largest reserves of coal but annual production from monopoly miner Coal India has not been enough to feed the guzzling needs of an industry as diverse as power plants, steel mills, cement and fertilizer units.

Last year saw the end to a 43-year old stranglehold through a change in the policy of auctioning natural resources.

The government opened up the sector to commercial miners.

The coal position now in the country was very comfortable and the Centre exuded hope that the imports of fossil fuel in the country would be contained to 235 million tonnes (MT) in FY’20.

Despite being a regulated sector we believe the changes in the mining policy will start playing out over the next 18bto 24 months.

While there is unlikely to be any short term impact for coal India the future could mean that several private sector players line up here and offer various value-added services 5o customers apart from raising productivity significantly

While coal India would continue to gain in the near term due to its inherent cost advantage but what could happen over the next 3 years is that we may see several private players come up which offer better services to customers and be more productivity-oriented as a large part of the demand is met via coal imports.

Not only will this increase competition but it will also bring in a lot of new FDI in the country which is positive.

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