KOLKATA (miningweekly.com) - State-run miner Coal India Limited’s (CIL’s) dominant position in the domestic market is unlikely to change any time soon even though the Indian government has permitted 100% foreign direct investment (FDI) in coal mining, paving the way for the entry of global resource companies.

The 100% FDI will be permitted through the automatic route, allowing global resource majors to invest in commercial coal mining in the country through wholly owned subsidiaries and permitting free pricing and free sale of production from their Indian mining projects.

Though this would theoretically enable global companies to participate at coal block auctions through their dedicated Indian subsidiaries, the possible entry of foreign investors into Indian coal mining is unlikely to make a difference to the dominant position of CIL, which produces 607-million tons of dry fuel, meeting over 80% of the country’s dry fuel requirement.

A CIL CEO noted that foreign-owned operations would take years to achieve the economies of scale needed to compete with CIL in terms of volumes offered to consumers through long-term contracts and to achieve any significant market share.

He also pointed out that the State-run miner was allocated new coal blocks through preferential allotment, or for free, while foreign miners would need to bid at the auction and any successful bidder would need to amortise the large upfront payments at the auction with comparatively limited volume production.

According to another CIL official, while it was true that several global resource majors were reducing their coal mining operations as the world moved away from the fossil fuel, investments in India would need to hedge against peculiarities of the country.

He said it would be interesting to note whether foreign investors could finalize project reports in India where the time taken from allocation of a block to production takes an average of six years, and generally foreign miners are "not too comfortable with such timelines".

Furthermore, the fact that around 30% to 45% of global coal production was accounted for from underground mines, posed the question of whether international miners would invest in India, where 94% of production was sourced from opencast mines.

It was pointed out by the official that CIL’s competitive strength was its ability to enter into long-term supply agreements with thermal power companies, leveraging its large production volumes.

Another crucial potential hurdle for FDI in Indian coal mining would be the funding of projects conceived by global miners. As per published reports, over 100 major international lending institutions had divested of thermal coal project investments as of February 2019.

Under the circumstances, foreign miners would be largely dependent on funding for their projects from Indian financial institutions which, at present, were all facing severe stress from existing non-performing assets with State-run banks dependent on government recapitalization to make provisions on their books.

Rather than foreign miners, CIL’s most notable competition would be NTPC, the country’s largest thermal power producer and CIL's largest customer, drawing up plans to become the second largest coal producer in the country.

NTPC, which currently sourced an estimated 170-million to 200-million tonnes a year of coal had targeted production of 100-million tonnes a year from 11 coal blocks allotted to it. Increased availability of coal from its own mines and a commensurate reduction in offtake from CIL were more of an immediate challenge than foreign coal miners’ entry into the country, officials added.