KPMG has estimated the contract coal mining sector to grow fourfold to Rs 60,000 crore by 2030 after it touches Rs 36,000 crore 2025.
"The flavour of the season, going forward, is commercial coal mining…However, there is limited attention to the contractors in the coal mining market who shoulder disproportionate volume of activities on the ground. This segment has grown by leaps and bounds over the last two decades. Today, a major part of the composite production of coal and overburden is through outsourced means delivered by various coal mining contractors. However, the understanding of this business is very sketchy, both at the end of mine owners as well as interested new entrants,” mentioned a report on Contractors in The Coal Mining Market released by KPMG on Friday.
“The current market size of overall coal, contract mining is around Rs 15,000 crore and is expected to become more than Rs 60,000 crore by 2030,” said Niladri Bhattacharjee, partner – mining and metals at KPMG in India, report agencies.
According to the report, the total number of large players in this segment, at present, is around 10-15. The sector has shown a lot of innovation and enterprise over the years and has offered a range of solutions to mine owners accommodating divergent business requirements.
However, funding in the coal sector has been difficult to come by on account of the uncertainty around the future of coal as well as the difficulty in navigating the land, resettlement and rehabilitation and regulations in India.
Bhattacharjee said: “Under such a scenario, it is only natural that mine owners will tend to share the developmental market risk with mine operators. Therefore, it is imperative to understand the key levers through which this objective of risk-sharing can be most efficiently managed and the consequences of not doing it properly. Some of the key contractual levers related to risk sharing are sharing of Capex burden, working capital management through mine operator and penalties for various types of slippages with respect to guarantees given to the government. “
These parameters should in turn define the nature of financial and technical criteria to be set so as to effectively calibrate the degree of the risk-sharing and the confidence level associated with it.
With every success, the financial position and technical credentials of a bidder changes, often taking them to the brink of their financial capacity. Therefore, it is important for the mine owners to be cognisant of these changes while defining eligibility criterion.
For instance, after coal block de-allocation, the turnover of various bidders collapsed faster than their net worth. By the same token, a player with multiple wins could end up with a precarious debt-equity ratio which will go unnoticed, if the qualifying criterion is only net worth. Thus, the importance of wisely defined eligibility criteria cannot be over-emphasised, the report mentioned.
