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ET Explains: India's coal sector output is back in the black. Here's what that means

The numbers are critical for India as it powers ahead to reach its goal of $5 trillion GDP.

, ET Online|
Last Updated: Jan 02, 2020, 08.47 PM IST
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Coal
Two of Coal India's important subsidiaries, South Eastern Coalfields Ltd (SECL) and Mahanadi Coalfields Ltd, showed signs of improvement with production growths of 11.3% and 10.1% respectively in December 2019.
India's beleaguered coal sector is beginning to turn things around. Coal India produced 58.02 million tonnes of coal in December compared to 54.14 million tonnes in the same period last year, a 7.2% jump and probably the best production figures scored by the coal behemoth ever for the said period.

Coal mining had seen a sharp decline over the last few months owing to several reasons, ranging from flooding of mines to labour unrest. The sector's output has shown contraction for the last five months (from July to November). However, November saw green shoots in mining as the contraction in the sector narrowed from 17.6 per cent in October to 2.5 per cent.

The numbers are critical for India as it powers ahead to reach its goal of $5 trillion GDP. A primer:

The 1-billion tonne challenge
State-run Coal India has set itself an annual production target of 1 billion tonnes till 2024. The target for current year is 660 million. For the first nine months of this fiscal, the total output is estimated to be 390 million tonne. That means for the next three months the national miner has to produce 270 million tonne of coal. To achieve that, Coal India is expected to spend the bulk of this year's budgeted capex, to the tune of Rs 6,900 crore, in the January-March fiscal. Majority of that capex will be on acquiring heavy machinery and transport wagons. “Coal India will be spending more than Rs 4,000 crore in acquiring heavy earthmoving machinery and procuring its own wagons for transporting coal to consumers,” an Economic Times report quoted a senior CIL executive said.

Sweeping changes ahead
2020 is going to be a significant year in terms of diversification of the coal sector. The government has set in motion plans to bring sweeping changes to the sector. It has opened up commercial mining to private players. The auctions are expected to take place soon. The government has liberalised the coal sector by allowing 100 per cent FDI. This move will make it easy for foreign giants like BHP, Peabody Energy and Glencore to set up shop in India, thereby increasing competition in the sector. The move will be an important one for India's power generation companies as well “as they can now attract larger global operators with lower cost of capital to undertake end to-end coal mining of their allocated blocks to reduce the fuel costs”, an Economic Times report said, quoting Kameswara Rao, leader-energy, utilities and mining at PricewaterhouseCoopers India.

Lower coal imports
The Centre is reportedly planning to auction over 200 coal blocks in the next five years. The move is in continuation of its efforts to lower India's dependence on coal imports. India's coal import bill is $20 billion, the bulk of which comprises thermal coal which is used in the generation of electricity. Removing hurdles in commercial coal mining will help in making India self-sufficient in coal production to meet its soaring energy requirements. So far, Coal India's monopoly had hamstrung production capabilities. This could well see a change in coming years on the back of private players entering the sector.

Improvement in consumption
One of the reasons for the coal output being anaemic so far has been India's economic slowdown. The slump in demand meant that the growth in manufacturing and mining activities remained muted. Coal output contracted for five consecutive months on the back of flooding and tepid demand. A turnaround could well be on its way as December coal output figures show. Coal mining also narrowed contraction in November on the back of improved demand. Two of Coal India's important subsidiaries, South Eastern Coalfields Ltd (SECL) and Mahanadi Coalfields Ltd, showed signs of improvement with production growths of 11.3% and 10.1% respectively in December 2019.
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