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MDO model likely to dominate Indian coal sector once all mines allocated become operational in 5-6 years

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Dion Global

06 Mar 2019

With the private sector not allowed to do merchant mining of coal, the mine developer and operator (MDO) model is likely to dominate the Indian coal sector once all the mines allocated become operational in 5-6 years, official sources said.

Over 40 mines with an annual capacity to produce more than 500 million tonne of coal have been allocated to state and central governments besides public sector units through competitive bidding.

These entities are likely to outsource the mining to MDO contractors, sources said.

Currently, coal for merchant mining is not allowed to the private sector and the only available route for them to enter the sector is through the mine developer-cum-operator route.

The MDO contractor carries out the entire gamut of activities right from land acquisition, R&R, mine planning to development and operation of mine and coal extraction and coal transportation up to the owner's loading silo on behalf of the mine owner who holds the mining lease.

In return, the mine owner pays a contractually agreed fixed mining fee.

State-owned Coal India Ltd last year produced over 550 million tonne of coal but the MDO model is fast catching up with the PSU that is struggling to meet rising demand from power producers and other industries, sources said, adding that ineffective project implementation of mining projects by the PSU has led to shortfall in coal production, which has adversely affected power producers.

Steel producer SAIL, power generator NTPC, Coal India subsidiaries, besides state governments of West Bengal, Odisha, Rajasthan, Telangana, Madhya Pradesh, Andhra Pradesh and Gujarat have adopted the MDO model instead of venturing into mining on their own in the past decade.

BGR Mining & Infra Ltd, Sainik Mining & Allied Services Ltd, Adani Enterprises, Sical Logistics, and Ambey Mining are some of the key players in this space.

The model has also attracted players such as Thriveni Earthmovers, Dilip Buildcon, VPR Mining, AMR, Monte Carlo, and Mahalaxmi Mining. Many of these companies are in the process of getting new MDO contracts.

Sources said the coal mining agreement signed between PSUs and MDO are provided to the Ministry of Coal, and the MDO selection is done through a fair and competitive process.

India meets close to 80 per cent of its electricity needs through coal-fired power plants. It is heavily dependent on imports to meet its needs despite having the fifth largest recoverable coal reserves in the world.

Sources said for a country, which imported over 156 million tonne coal between April-November 2018, MDO model can reduce import dependency and meet India's surging energy needs and save foreign exchange.

MDO, with its technical expertise, enables faster operationalisation of the coal blocks.

Since all capital investment on equipment and infrastructure are borne by the MDO, it is responsible for delivering coal of declared quality and quantity at a mining fee arrived at through competitive bidding or reverse auction.

MDO attracts stringent penalties for any delay in development of coal block or shortfall in quantity or deviation in quality, they said adding that MDO hedges the owner from the project and financial risk.