India may still be far from fully privatised operations in its coal industry, but the government, eager to augment the fuel?s domestic production, intends to widen the scope of public private partnership (PPP) model in the sector by treading the fine line of legality. In line with finance minister P Chidambaram?s Budget promise of a PPP policy framework involving Coal India, the government plans to expand the scope of contract mining by enlarging the private firms? role as mine developer-cum-operator (MDO), said coal ministry sources.
The idea, these sources said, is to give the private players greater development roles by making them minority equity partners in joint ventures with CIL. The ownership of assets and the produce as also the right to commercial sale of the fuel will remain with the PSU (so that the Coal Mines Nationalisation Act is not violated) but practically all investments, mining technology and human resources will be provided by the private firm. The risk of mining operations (except those of uncontrollable costs) will, in great part, be assigned to the private players, which means they also stand to gain from efficiency.
The new PPP framework will be discussed by the inter-ministerial group on the subject on Monday.
Analysts said this could attract global mining giants rather the extant MDO model sans equity partnership by them. Earlier, the plan was to buttress the MDO model by providing longer ? say, 30 years, tenure of the service contract. The current thinking in the government, after receiving informal feedback from the likes of Rio Tinto, BHP Billition is that along with the longer MDO tenure, equity-sharing option could also be given to them. The intent is to develop a host of big greenfield ventures, enabled by technology, human resources and finance from the mining giants. ?An equity sharing model is more efficient than the pure MDO model as it gives similar incentives to both ? the government and the private sector. Further, because of equity ownership, the private player will be in a better position to raise finances and invest in the mines,? said Kameswara Rao, leader, energy utilities & mining, PwC. The option will need to be vetted by the law ministry.
The new model is being considered at a time when the government is worried about the 22% annual rise in coal imparts and its adverse impact on the current account. Globally too, such liberal PPP models are increasingly being adopted by mineral-rich countries to increase production, while fully privatised operations also co-exist in some countries.
India meets about 60%
of its electricity requirement from coal. While the domestic coal production is growing at 3-4% annually, demand is rising by 6-7%. ?The gap between demand and availability of coal in India is expected to rise every year. As per the 12th Plan, the estimated demand for coal will rise to 980 MT by 2016-17 and 1,373 MT by 2016-17, while the supply of domestic coal is expected to be 7,95 MT by 2016-17 and 1,102 MT by 2021-22,? PwC said in a recent report.
The inter-ministerial committee set up in March to work out a PPP policy framework, is expected to discuss possible equity partnership options at its meeting scheduled on Monday.
While there is no legal hurdle to adopting the MDO model, equity sharing has to comply with the Coal Nationalisation Act of 1973, which bars private players from commercial coal mining.
Former power secretary RV Shahi also feels that equity sharing is better than the pure MDO system, but said the latter is only feasible option under existing law.
?Once 51% equity is given to a state-owned company (CIL in this case) in a JV, every matter relating to it will be regulated by the government as in case of any other central public sector enterprise (CPSE). This could be a disincentive for the private companies,? Shahi said. Public sector undertakings (PSUs) are subjected to multiple scrutiny by government agencies like the Central Vigilance Commission, Comptroller and Auditor General and Parliament besides the concerned ministry. No private company would like to be put under such an intrusive supervisory structure, he said.
