Companies turn up well for first coal auctions

Sai Nikesh | The Dollar Business With a view to minimize their dependence on imports and production from Coal India Ltd, the Indian cement and steel companies aggressively participated in a bidding for coal in the country’s first round of auction to sell mines. Currently 19 blocks of the mines are on offer for auction till February 22 and the Coal Ministry has so far auctioned 13 blocks in the current bid. The companies were allowed to bid for enough coal, which is expected to cover up to 50% of their metal or cement capacity expansion. Coal India’s prices that are set according to the costs rather than demand for supply made the companies think out of dependence on Coal India Ltd and this lead the companies to jump into action in the current bidding. However the reports say that unregulated bidding will have negative credits to the companies as they would have to face problems in the case of block allocations. The reports also say that the unregulated coal bidding would favour steel and aluminium manufacturing companies as the coal accounts just 3% of their production cost, compared to the cement companies for which the coal accounts for 10-15% of their production costs, which would not be that profitable for the cement companies. But, for the regulated sector like power sector, more bidding will be credit negative as the excessive block allocations would result in excessive coal availability, which would be credit negative, say the reports. However, the Government of India’s earlier estimates to raise Rs 15 lakh crore from the new bidding process may turn possible with the ongoing pace of the companies towards the bidding process. The second round of auction that involves around 43 blocks would be from February 25 to March 5 is expected to be much more aggressive. With the companies showing much interest for coal bidding, there exists a larger scope for the increase of domestic coal production. India’s coal imports with 15.73 Million Tons in January, 2015 recorded 3 % year-on-year increase (MT), against 15.37 MT in January, 2014. Going by the statistics, India’s coal imports in January 2015 stood at 15.73 MT against 19.75 MT in December 2014. Due to a lesser demand from steel makers, the imports of cooking coal, a raw material used for making of steel, fell to 2.4 MT in January from 3.2 MT in December. Now with the steel companies actively participating in the bid, India can witness a demand for coal from them and may have to further boost its production to meet the domestic requirements.  

This article was published on February 19, 2015.