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Corrective steps for coal, iron ore

The Coal Mines (Special Provisions) Ordinance 2014 issued on October 21 has facilitated the process of allocation of all coal mines/blocks

Corrective steps for coal, iron ore

The Coal Mines (Special Provisions) Ordinance 2014 issued on October 21 has facilitated the process of allocation of all coal mines/blocks that were cancelled by the SC (204 in number), ownership of land and mine infrastructure along with mining leases to successful bidders. The appointment of the regulator and team to monitor and supervise the process and commence production from these mines in a time-bound manner is a welcome step.

Compared to the tardy pace of reforms/preventive measures adopted by the government in regularising/ monitoring the operations of all blocks allocated since 1993, the issuance of the ordinance immediately after the cancellation order speaks volumes about the good intention to clear the Augean stable and regulate the coal sector.

One landmark of the ordinance relates to opening up the sector to foreign investment, joint venture and PPP mode of investment. It would herald any of the big four (BHP, Rio, Vale and FMG) to invest in India as the demand scenario from steel, power and cement sectors is positive and would thus mainly benefit mine exploration, open cast mining, beneficiation, import and subsequent manufacturing of coal handling equipments and technology transfer.

The reservation of the blocks for a few public sectors and critical players strengthens the government?s intention and commitment against full privatization. On the same logic, the privatisation of Coal India may wait till full implementation of the process of bidding and commencement of production from the cancelled mines. The bidding process must commence fast, but for the settlement of pending cases involving units violating procedural norms and collection of penalties from the ongoing units which would resolve the eligibility criterion.

The global scenario of coal is depressing. Coking Coal prices have dropped to around $110-113/t fob Australia. China has reduced imports and imposed 3-6% duty on coal imports, depending on the grades (other than South East Asia). Japanese demand has fallen sharply. The impact on surplus capacity in coal would, therefore, auger well for India to get a better term for investment from big global miners.

The iron ore scene in the country continues to be fluid. Almost all major iron producing states are under SC order to restrict production. The estimated availability from Odisha, Karnataka, Chhattisgarh, Jharkhand and Goa is falling short of demand, which is not putting pressure on NMDC to reduce prices inspite of global prices hovering between $79-85/t cfr China.

The royalty charges of 15%, forest development tax of 12% and VAT at 5% added to the base price and transportation charges make the factory price of iron ore marginally cheaper than the landed cost of imports. In the current fiscal, India may end up with import of around 10-12 mt of iron ore. This is unfortunate considering our strength in having large iron ore deposits.

Interestingly, China, in spite of restraining steel production, continues to maintain its import momentum in iron ore, as many of its high cost indigenous mines have stopped production with global average cost touching around $50/t cfr China. This fact also encourages the big four to carry on their expansion plans.

There is much uncertainty on domestic availability of iron ore at the right price and quality. The non-uniformity of the supply mechanism from different states has enhanced the need of a regulator body to monitor supply and remove plurality in supply clauses of different states. The current

e-auction for disposal of inventories has failed to attract a large number of participants due to high base prices.

After coal, it is high time the government, in consultation with states, installs a corrective mechanism in production and marketing this precious natural resource, keeping in view the concern of the consuming sectors.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal

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First published on: 28-10-2014 at 01:58 IST
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