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Coal India to get new arm to shore up PPP projects

Public sector Coal India will have a subsidiary dedicated exclusively for the development and awarding of public-…

Public sector Coal India will have a subsidiary dedicated exclusively for the development and awarding of public-private partnership (PPP) projects in coal mining. The move is aimed at accelerating coal mine production in the country with the active participation from the private sector, including multinational corporations.

Commercial coal mining by private players is not allowed and since the system for allocation of captive coal mines to private players on a discretionary basis led to scams, an auction mechanism is being put in place for this.

The government has envisaged a mine developer and operator (MDO) model for PPP ventures. Under the MDO model, CIL will offer its already-explored blocks for mining to private players selected through competitive bidding and the selected firms would undertake mining and transfer the fuel to CIL for a fee. However, this has not evoked much enthusiasm from private players because they lacked any say in the marketing of the fuel and were merely required to perform the role of a contractor.

In the proposed subsidiary model, the proposed dedicated CIL arm would undertake mining projects in joint venture special purpose vehicles (SPVs) with private sector players as equity partners. So practically, CIL and the private partners would mine and sell coal and share profits in proportion to their equity holdings in the SPV. A similar mechanism is already there with state mineral corporations.

The proposed CIL subsidiary would be allocated mines that either have all required clearances or are in advanced stages of getting such clearances, sources said. Some of existing mines of CIL, which are yet to be explored, may also be transferred to the new entity, they added. A time-bound programme may also be established for award of PPP projects through auction.

?The high-level committee on financing infrastructure, chaired by Deepak Parekh, has favoured a dedicated subsidiary for PPP projects in coal mining in its second interim report prepared recently. Alternatively, it has also favoured the setting up of a new public sector undertaking (PSU) for this activity. We are examining the matter and the process would be taken forward after the new government is formed,? said a coal ministry official.

?Such activity is feasible as long as the state-owned entity is the majority partner in the SPV,? said a private sector coal mine developer who has formed a JV with Chhattisgarh Mining Development Corporation.

With India holding fifth biggest coal reserves in the world (December 2013 estimate puts proven reserves at 60.6 billion tonne), it is felt large involvement of private players and introduction of latest technologies in mining could change situation rapidly.

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First published on: 23-04-2014 at 05:42 IST
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