Indian Coal Sector Has Unique Opportunities, Albeit Inherent Inefficiencies: KPMG
The report highlights that this market has grown by leaps and bounds over the last two decades. According to KPMG in India analysis, the market size of coal contract mining is likely to grow four-fold by 2030 from FY2018.
KPMG in India recently launched a report titled ’Contractors in the coal mining market’ at the 11th India Coal Summit. The report takes a deep dive into the role played by various contractors in the coal-mining market with a specific focus on mining contractors, Mine Developer and Operators (MDOs) and Active Mine Managers (AMMs). The report highlights that this market has grown by leaps and bounds over the last two decades. According to KPMG in India analysis, the market size of coal contract mining is likely to grow four-fold by 2030 from FY2018.
The report further highlights the need for sharing the developmental market risk between mine owners and mine operators and, therefore, the importance of wisely defined contractual terms and eligibility criteria. It talks about the need for mine owners to be competent and balanced in drafting tender clauses to minimise value loss due to non-operationalisation. It also discusses the need for an effective monitoring mechanism to objectively evaluate the performance of contractors and how information technology can be successfully deployed to achieve results.
Commenting on the importance of contractors in the coal market, Niladri Bhattacharjee, Partner - Metals and Mining, KPMG in India said that the Indian coal industry is multi-tiered. It goes beyond the coal PSUs or the commercial coal block owners who are receiving attention at this point of time. There is a larger market comprising contractors, equipment manufacturers, consumable suppliers etc. This report focusses on just three segments of contractors in the coal value chain and estimates the annual value of these three segments at over INR60,000 crore by 2030. The realisation of this number is, however, subject to design of balanced contracts that share risks equitably and effective contract management using industry-leading processes and systems, he said.
This paper looks at some of the active mining contractors and compares their financial and technical competencies, studies past tenders from the point of view of technical and financial qualifications sought as eligibility criteria and arrives at some remarkable trends. It also discusses in detail the reasons of delays/non-operationalisation of mines/non-fulfillment of several requirements, the impact of such delays on appropriation of the performance security submitted by the mine owner to the Ministry of Coal and clauses in the tender document and mining agreement that require a specific focus to avoid this value loss.
In summary, the report says that the market is complex and of this nature because of inherent inefficiencies and unique opportunities prevalent in the Indian coal sector. So, the only tools in the hands of all stakeholders are the contract, the method through which the service provider is chosen and the extent of monitoring. The need of the hour is to wisely design all three for the long-term sustainability of the business.