India will delay opening commercial coal mining to private companies due to lower-than-expected demand for the fuel, a government official said, which could make it difficult for the country to meet ambitious output targets.
The world’s third-largest coal importer wants private companies to contribute about a third of an annual production target of 1.5 billion tonnes by 2020, but the hold up in opening the sector to non-government companies for the first time in over 40 years may mean India will fall well short of that mark.
State-run Coal India (COAL.NS) has ramped up production at a record pace, but debt-heavy power companies are not buying fast enough. This has forced the government into power reforms that can only start to yield results in the next few months.
“We’re reasonably confident that (the reforms) will help raise demand,” Coal Secretary Anil Swarup said. “We are ready, but there would be a little delay in opening up for private companies.”
Swarup, who was earlier aiming to unveil a commercialisation plan around April to double India’s coal output by 2020, said the government has already identified mines to auction and that it would proceed quickly once market sentiment improves.
As of now, only Coal India (COAL.NS) and a small government-owned company are allowed to mine and sell coal in India.
When demand does improve, the plan to open up will likely attract coal block bids from Indian conglomerates such as the Adani Group (ADEL.NS), but New Delhi may find it hard to lure multinational miners such as Rio Tinto (RIO.AX), BHP Billiton (BHP.AX), Anglo American (AAL.L) and Peabody Energy (BTU.N).
Coal prices have bounced from multi-year lows hit in mid-January but investors are still worried about global oversupply.
Foreign companies have also previously faced obstacles to investing in India, such as problems in getting land and environmental approvals, dampening their appetite for taking on large-scale projects in the country.