Financing Commercial Coal Mining: Banks Must Consider Several Factors

The government is in a hurry to give corporate companies an edge over existing players.

Funding for auctioned coal blocks could be critical as bank finance would not be available until after block operations start. SBI said Mukul Modi, executive vice president of Caps.

The viability of the mine, the associated cash flows and the terms of payment in a supply contract would also be sought for the financing of coal mining projects, he added.

Banks would look at factors such as demand, prices, and transportation modalities upon which cash flow depended. Customers to whom supplies would be made and contracts concluded would also be important, as would the historical behavior of the spot markets and, ultimately, the outlook for the coal exchange, Modi said.

Over a 30-year lease term, it will take an average of five years for the 19 blocks, which were taken with premiums between 9.5% and 66.5%, to be operational.

The expenditure required for the development of the mines will be high because only the acquisition of land would cost at least 1 crore of rupees per hectare. Subsequently, the delay in approvals and subsequent penalties for delay in operation would be detrimental to returns on investment down the line, rendering operations commercially unviable, said RP Ritolia, advisor to Swayambhu Natural Resources, adding that only 19 out of 36 blocks could be auctioned. since most players couldn’t see the viability factor there.

With 50% of the blocks auctioned being captive and Coal India producing 1 billion tonnes by 2024, the supply and demand situation could be an obstacle for the commercialization of commercial miners, Ritolia added.

Since 2015, EYELASH produced more than demand and pushing charcoal to existing consumers has become a challenge, said SN Tiwary, director (marketing) of CIL.

Besides these factors, the acquisition of land is already an obstacle. Gaps in data, lack of standard aid and rehabilitation policy and unidentified land for compulsory afforestation hamper faster mine development, Himanshu Singh, Director, Coal – Trade Group, Vedanta, noted.

The presumed approval of the various demining required, notably for the environment and deforestation, could be a solution to make the mines quickly operational with states allocating land from their land reserve for compulsory afforestation. The Center should have a standard R&R policy, Singh added.

Mjunction MD and CEO Vinay Verma said 65% of block winners are not mining players.

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