KOLKATA (miningweekly.com) – Coal India Limited (CIL) would slow down the development of new underground mines unless the price for coal extracted from these mines could compensate for the higher cost of production.

In a briefing before the Coal Ministry, CIL chairperson S Narsing Rao conveyed that the miner’s cost of production from underground mines had gone up by an average of between $14/t to $16/t over the last year, and production had been falling at a rate of one-million tonnes a year, according to an official in the Ministry.

Rao pressed upon the Ministry that it was imperative to increase production through existing and new underground mines, but noted that this could not be done unless CIL was able to charge a higher price for coal extracted from such mines.

He said that with coal production costs from underground mines increasing to levels of around $54/t, the minimum internal rate of return of 12% on investments in underground mines could not be achieved unless CIL was able to charge a higher price for such production.

However, the Ministry was unsure of the feasibility of having dual prices for coal based on the mode of production and noted that such an issue would be left to the proposed independent coal regulatory authority, which had been approved by the government.

CIL’s reluctance to increase its underground mining footprint comes as a damper to a recent Coal Ministry initiative to boost coal production through underground mining. The Ministry was in the process of setting up a committee of experts to draw up a long-term strategy on capital investments and technology upgrades to increase production from underground coal mines of CIL and Singareni Collieries Company Limited (SCCL).

Furthermore, the Ministry was also framing an incentive package to boost underground mining, including differential royalty rates on coal mined underground and investment-linked tax holidays. However, according to CIL, while indirect incentives could kick-start new projects, their long-term economic viability could only be ensured through a price regime that would support a healthy internal rate of return.

Of the 467 mines operated by CIL, 270 were underground, 160 were opencast and 30 were mixed mines. In 2012, CIL’s production from underground mines was only 37-million tonnes out of total production of 435.84-million tonnes.

If one added mines operated by SCCL and other smaller government-owned coal miners, the total coal mined underground in 2012 was pegged at 51-million tonnes, out of total Indian coal production of about 557-million tonnes.