By Dipesh Dipu
The government of India has proposed public-private partnerships (PPP) for coal mining in the country and expects the business model to enhance production capacity, which has been a concern as supplies have fallen short of demand consistently and have led to import dependence. But does PPP in coal mining have the potential to provide value for money for the government?
It has been proposed that Coal India (CIL) will be the nodal and executing agency for coal mining PPPs. Development of coal mining projects of CIL through PPP aims to add about 60-70 million tonnes per annum capacity in the next five years. CIL has been using contract miners for overburden removal and, in some cases, for coal winning; this has been successful in harnessing private efficiencies.
These contracts have, however, tended to be short-term ones. The concept of Mine Developer and Operator (MDO) has been evolving and public electricity utilities have tied up with MDOs for turnkey development of coal mining projects, but the efficacy of the model isn’t yet established. MDO contracts have varied in terms of scope for contract miners; the most successful ones have been those in which the ground has been prepared with all clearances and approvals taken and land acquired and possessed for the contract miner to begin excavation and production.
There is potential value for money in the PPP in coal mining due to the fact that the private sector tends to utilise capital assets including mining machinery, beneficiation plants and handling facilities better and extracts better efficiencies. Human resources productivity in private mining may also be higher even though there have been reports of labour exploitation in contract mining.
There may also be some value in better procurement processes and lower overheads in cases of private contract miners. The potential of value for money in PPP can be unlocked only by ensuring the risk perception of the project and its associated risk premium does not exceed the efficiency, utilisation and productivity gains of a private partner.
That has been the cause of concern for several contract mining tenders floated by state governmentowned utilities. When the scope of work for a contract miner tends to include any or all of the exploration works, mine planning, obtaining clearances and approvals, land acquisition, rehabilitation and resettlement, the risk premium of the project tends to exceed the probable gains from private efficiencies.
The proposed PPP with CIL as the counterparty willing to invest in mining equipment, infrastructure and associated capital outlay may still have low value for money since the scope of private partner includes risk-enhancing components. The reason for such a PPP structure is the perception that a private partner may find getting clearances and approvals and acquiring land easier that the public or government-owned partner.
Recent experiences in coal and other sectors do not conclusively support such an opinion. The reason for such risk perception emanates from the need to pay more than legally due to various stakeholders involved; that these payments considered difficult for a public partner but easier for a private one are inevitable in any case.
This is a fundamentally wrong assessment. Several Indian and globally-renowned contract miners in view of their reputation and compliance requirements will never consider these extra-legal payments and, hence, may not be able to start the project on time if they at all bid and win such a contract. Given such complexities, PPP in coal mining may not hold much value for money and may not be as successful.
PPP in coal mining is the only way to enhance production given the current statutory framework that prohibits private participation except for captive mining by approved endusers. If that were to continue, the externalities in clearances and approvals, land acquisition, reclamation and rehabilitation need to be simplified.
The recent land acquisition legislation has attempted a fair and equitable process but its efficacy is not yet proven. So, PPP in coal mining seems set for rough weather.
The writer is associate professor, energy area, Administrative Staff College of India. Views are personal
The government of India has proposed public-private partnerships (PPP) for coal mining in the country and expects the business model to enhance production capacity, which has been a concern as supplies have fallen short of demand consistently and have led to import dependence. But does PPP in coal mining have the potential to provide value for money for the government?
It has been proposed that Coal India (CIL) will be the nodal and executing agency for coal mining PPPs. Development of coal mining projects of CIL through PPP aims to add about 60-70 million tonnes per annum capacity in the next five years. CIL has been using contract miners for overburden removal and, in some cases, for coal winning; this has been successful in harnessing private efficiencies.
These contracts have, however, tended to be short-term ones. The concept of Mine Developer and Operator (MDO) has been evolving and public electricity utilities have tied up with MDOs for turnkey development of coal mining projects, but the efficacy of the model isn’t yet established. MDO contracts have varied in terms of scope for contract miners; the most successful ones have been those in which the ground has been prepared with all clearances and approvals taken and land acquired and possessed for the contract miner to begin excavation and production.
There is potential value for money in the PPP in coal mining due to the fact that the private sector tends to utilise capital assets including mining machinery, beneficiation plants and handling facilities better and extracts better efficiencies. Human resources productivity in private mining may also be higher even though there have been reports of labour exploitation in contract mining.
There may also be some value in better procurement processes and lower overheads in cases of private contract miners. The potential of value for money in PPP can be unlocked only by ensuring the risk perception of the project and its associated risk premium does not exceed the efficiency, utilisation and productivity gains of a private partner.
That has been the cause of concern for several contract mining tenders floated by state governmentowned utilities. When the scope of work for a contract miner tends to include any or all of the exploration works, mine planning, obtaining clearances and approvals, land acquisition, rehabilitation and resettlement, the risk premium of the project tends to exceed the probable gains from private efficiencies.
The proposed PPP with CIL as the counterparty willing to invest in mining equipment, infrastructure and associated capital outlay may still have low value for money since the scope of private partner includes risk-enhancing components. The reason for such a PPP structure is the perception that a private partner may find getting clearances and approvals and acquiring land easier that the public or government-owned partner.
Recent experiences in coal and other sectors do not conclusively support such an opinion. The reason for such risk perception emanates from the need to pay more than legally due to various stakeholders involved; that these payments considered difficult for a public partner but easier for a private one are inevitable in any case.
This is a fundamentally wrong assessment. Several Indian and globally-renowned contract miners in view of their reputation and compliance requirements will never consider these extra-legal payments and, hence, may not be able to start the project on time if they at all bid and win such a contract. Given such complexities, PPP in coal mining may not hold much value for money and may not be as successful.
PPP in coal mining is the only way to enhance production given the current statutory framework that prohibits private participation except for captive mining by approved endusers. If that were to continue, the externalities in clearances and approvals, land acquisition, reclamation and rehabilitation need to be simplified.
The recent land acquisition legislation has attempted a fair and equitable process but its efficacy is not yet proven. So, PPP in coal mining seems set for rough weather.
The writer is associate professor, energy area, Administrative Staff College of India. Views are personal
