The measures announced by the government for mining industry are expected to have a positive impact in the coming years. 

The Union Finance Minister announced measures worth Rs 11 trillion in five tranches over the past few days to contain the economic fallout of the Covid-19 pandemic. Add to this the earlier announced measures worth Rs 9.9 trillion (RBI liquidity support and others), and the financial support works out to Rs 20.9 trillion. As part of this stimulus package, the government has made announcements for mining sector. These include offering 500 mineral blocks, including 50 coal blocks, promoting commercial coal mining (ordinance to remove captive end use restriction passed in January 2020), government is to expedite policy formulation and auction process, composite exploration/auction of coal bed methane reserves for extraction, rebate offered on revenue sharing quantum to incentivise early operationalisation/higher produce, and provision of Rs 50 billion for evacuation infrastructure.  

Impact assessment on mining CRISIL conducted an impact assessment study on the new announcements on mining sector. The study has highlighted the following assessments on mining in the country.

While the industry currently enjoys close to 75 per cent captive bauxite, auction of new bauxite mines will lead to fall in bauxite imports as well as purchase of merchant bauxite in medium term. Further, with all three players are ramping up their refining capacities, incremental bauxite will be required which can be met through these new bauxite auctions leading to higher cost competitiveness in medium term.

Power costs account for close to 40 per cent of the total costs for the aluminium industry. While all the players enjoy high proportion of captive and linkage coal, supply shortage of linkage coal often leads to players restoring to imports which leads to a surge in power and fuel costs. In fact rise in power and fuel costs led by supply disruptions along with fall in realisations led to steep fall in margins (EBIT) for the aluminium industry to ~3 per cent in fiscal 20 from 10.2 per cent in fiscal19.

Policy for commercial sale of coal will improve sector attractiveness. It is aimed to reduce dependency on Coal India (CIL) for coal supply and to attract private capital to the sector.

Commercial mining may potentially substitute 50-100 MTPA of imported coal demand, where India imports roughly 200 MTPA on an average. Usage of imported coal will be restricted due to its requirement for - imported coal based power plants; blending needs in industrial usage to control quality; and use in steel industry where currently domestic coking coal production is insufficient.

Participation for coal block auctions will be dependent on key characteristics of the mines on offer. These pertain to size/capacity of mine, type of reserves, location, expected quality of coal, environmental approvals etc. Several of these have been a restraining factor in previous attempts to auction coal blocks.

Methane gas cover on coal reserves has been an impediment to safely mining coal blocks. Joint lease for such coal mines will enable mining and gas exploration entities to tie up for extraction. This is aimed to expedite coal production from such mines and improve supply of methane (a natural gas substitute) for end-use industries such as fertilisers, LPG usage etc.

Rebate is currently related to early operationalisation of mine and higher production (as compared to expectations). This will incentivise players to operationalise mines quickly and improve production efficiency.

Low/untimely availability of rakes for transport of coal has limited coal supply in the past. Additional support from government towards such infrastructure will lead to faster supply, as well as lower cost to users where transport was not feasible.

CRISIL suggests that ease-of-doing-business factors also need to simultaneously improve for commercial coal mining to take off such as land acquisition and statutory approvals, rail connectivity to pit-heads and, evacuation infrastructure.