Indian mining reforms - work still in progress
Whenever we talk about mining in the context of cement industry, we mostly limit ourselves to a discussion on limestone mining. There are two reasons why we must look beyond limestone; firstly, because, the whole regulatory environment in the mining sector is bound to have an indirect but rather significant rub-off impact on limestone mining/cement sector; secondly, and more directly, changes in coal mining regulations also would have a direct bearing on the cement sector, given that cement is energy/power-intensive, and cement plants consume coal both as fuel and raw material in the cement kiln, besides using it as fuel for their captive power plants.
Therefore, 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. This comes a full seven months after the Government had announced that coal mining would be opened up for commercial exploitation in 2017-18. It is certainly hoped that a successful auction of these mines in Odisha, Madhya Pradesh and Jharkhand, for commercial third party sale will be a major forward looking step from the last few rounds of auctions for captive use of coal, and will hopefully help to free up the domestic coal sector from the monopolistic stranglehold of Coal India, which reeks of inefficiencies. In any case, the coastal or 'nearer to the coast' cement plants are already dabbling with the options of imported coal, and with the interesting alternative of pet coke in the fuel mix, in order to gain freedom from Coal India's abysmal disregard of quality and customer complaints.
Captive mining of coal means rigidities and limitations, while commercial mining means liberation from these restrictions and means achieving economies of scale. So, if things go well, we might see nothing short of a revolution in the coal mining sector in India, which will obviously impact the cement industry as well. Do we see a reflection of things to come, in the movement of share prices of Coal India, when we observe that from a peak of Rs 447 in 2015, the shares of tumbled down to Rs 260 today? From this perspective of a revolution in coal mining sector in India, the Supreme Court's order of September 2014 cancelling allocations of 214 mines, has been literally epochal and path-breaking, in the sense that the order precipitated auctions by a grand judicial fiat, rather than by executive action or policy decision.
On the one hand, the deregulation of coal mining, including gradual phasing out of 'linkage coal' is potentially pushing us towards a fair market of coal, on the other hand, the auctions of captive limestone mines for new cement plants is creating a highly unequal playing field between new cement entrants and older players with decades of residual legacy mining concessions obtained virtually free. This inequality has to be resolved, sooner than later, for the cement industry to grow unfettered.
Sumit Banerjee Chairman, Editorial Advisory Board