India plans to allow non-state mining companies to mine and sell coal for the first time in more than four decades, federal coal secretary Susheel Kumar said.

The nation’s coal ministry will auction four mines to both state-run and private companies during the year starting April 1, Kumar told reporters in New Delhi. The winning bidders will have the freedom to sell the coal, a privilege currently limited to a handful of state-run companies.

The step may allow miners an opportunity to benefit from one of the world’s biggest coal markets, yet the offer has to be good enough to compensate for regulatory challenges, according to analysts. A broader implementation of the plan could threaten the monopoly of Coal India Ltd., which controls more than 80 percent of the nation’s production.

“India remains a large market for coal,” said Debasish Mishra, a partner at Deloitte Touche Tohmatsu LLP in Mumbai. “Still, challenges, such as regulatory hurdles, difficulties in acquiring land, delays in getting environmental and other clearances and lack of transportation infrastructure, remain. There have to be adequate incentives to offset these.”

The government will have to offer mines with reserves of more than 1 billion metric tons to enable scale of operation and use of technology and allow investors complete pricing freedom, Mishra said.

Devising Guidelines

Kumar said his ministry is working on guidelines for the auctions, but declined to give details.

India’s coal market is controlled by two state companies — Coal India and Singareni Collieries — while some private firms are allowed to mine coal for their own use. In March 2015, India’s parliament approved changes to a mining law that would enable the government to open up commercial mining of coal to private companies.

Later that year, the nation’s cabinet approved a plan to allow more state companies to mine and sell the fuel, which helps generate more than three-quarters of India’s electricity.

A further 19 mines will be offered for sale during the year, but the coal produced can’t be sold and must be used for specified projects such as power plants, steel mills and cement factories operated by the owners.

Source: Bloomberg