Coal goes Commercial, finally
Coal goes Commercial, finally

Coal goes Commercial, finally

For anyone left wondering what coal has to do with our review of the cement industry, we have to first clarify the context. Coal has the special distinction of being at the same time, the fuel and a raw material for production of clinker, the cement intermediate. How is this complicated combination (of being fuel and raw material) made possible? This is because, in the cement kiln, when pulverised coal is fired through the burners, it provides energy needed for the chemical calcinations reactions, and then the combustion residue of coal with all its silica, iron oxides, and other compounds, add to the cementatious properties of the end-product. To this, if we were to add that most cement plants in India run coal-fired captive power plants for much of their power needs, the role of coal in cement industry gets further enlarged. As much as 25 per cent of the manufacturing cost of cement could be coal, and clearly, major upheavals in the coal markets are bound to cause tremors in cement sector.
What's the big deal now? The government is reportedly nalising a shortlist of about a dozen mining blocks that could be offered for commercial mining to private entities in the rst round of auctions. The shortlist of coal blocks nearly all having at least 50 million tonne of reserves - include four mining blocks each in Odisha and Chhattisgarh, and one each in Madhya Pradesh and Jharkhand. In our editorial in November last year, we said "It does cause a lot of happiness to know that the clock is really coming full circle, all the way from the Coal Mines Nationalization act of 1973, to the year 2017 this day, when reportedly the government is for the first time, set to auction 10 coal mines for commercial mining". The wheels of progress move rather slowly in the government parlance, and it is no surprise that we have taken some time to finally see the onset of auction of commercial coal mines, but better late than never, as they say!
No one would doubt that in the longer term, this augurs well for everybody, as a free market with perfect competition evolves from the current monopolistic situation where Coal India rules the roost. However, down this road, as we make progress, there will be winners and losers in the interim, and as coal prices start reflecting market reality. The cement companies with legacy coal linkages will get an advantage for some time, while all players will benefit from improved quality and service levels as the market opens up. The fortunes of Coal India will be closely watched during this transition, as it is able to realise better prices, but will have to face private sector competitors which may also include international biggies. To get an idea of the time horizons involved, our guess will be that it will take five to eight years for private commercial operators to enter the domestic coal market.
Our monopoly player Coal India has not been sitting idle. They have recently agreed to third party sampling of coal to resolve disputes around quality, starting with public sector consumers like NTPC etc. On top of that, they have recently announced introduction of a transparent pricing system linked to the calorific value of the coal supplied. Quite in conformity with some international norms, Coal India now wants to use a price coefficient for each grade of coal in terms of paise per kilocalorie, which is nothing short of a revolution for our staid protected coal market.
All in all, both sellers and buyers of coal in India are in for an exciting ride going forward.
Sumit Banerjee Chairman, Editorial Advisory Board

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