Coal News We love to talk!

JUN 29 2017

Coal projects provide growth scope for mine developers: India Ratings

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 29th JUN 2017


With the central and state utilities expected to invite bids for coal mining in the near future, domestic mine developer and operators (MDOs) with a good track record will have big growth opportunities, said India Ratings today.

“The MDO route presents a large growth opportunity for domestic engineering, procurement and construction (EPC) players with a demonstrated relevant track record, subject to attractive mine economics,” the ratings agency said in a statement here. “The credit profile of the appointed MDOs during the mine development phase is perceived to be risky, owing to high capex and negative-to-low free cash flow. “However, the credit profile is likely to improve gradually over the mine operating period as the cash flows are negative to low till the annual production reaches the peak production capacity, and thereafter turn positive,” it said. Ind-Ra said considering the high capex during the development phase, it becomes extremely important for the operator to achieve the envisaged strip ratio and/or operational efficiencies to recover the capex along with a reasonable return.

According to statistics, as of May 2017, one out of the four MDOs appointed by central and state power utilities in the last 21 months has commenced mining operations and another two are likely to do so in FY18. The remaining MDO will start mine development in FY19.

“The slow pace of appointment is attributed to the delay in securing requisite clearances and collection of techno-commercial data by the awarding authority for inviting prospective bids,” the rating outfit said. Nevertheless, 14 captive coal mines owned by central and state power utilities with geological reserves of 6.8 billion metric tonnes are under various stages of bid invitation and evaluation while techno-commercial bids for 19 mines with geological reserves of 9.3 billion metric tonnes are in the pipeline, it said. Ind-Ra expects EPC contractors with an experience of excavating more than three million metric tonne per annum of mineral or overburden in mining belts, moderate free cash flow, low leverage translating into high financial flexibility to be strong contenders for MDO appointment.

“However, given the amount of investment and length of the gestation period involved in mine development, most moderately leveraged private contractors can only operate two mines under development phase at the most to maintain their credit profile in a comfortable range,” it noted.

The rating agency, however, pointed that despite the promising benefits, MDO projects are fraught with operational challenges with respect to delay or inability to achieve the peak production capacity, risk of an increase in strip ratio, variability in off-take, challenges in incremental land acquisition and conflicts from inhabitants. “These impediments can spiral costs and weaken the financial metrics of appointed contractors,” it added.


Captive Captive Coal Coal Land Acquisition State Power Utilities Coal Mines Mine Developer and Operator Power coal mining India CAPTIVE

Related News

  • Whether a Consumer is liable to pay Cross Subsidy Surcharge to the Distribution Licensee for availing power supply under Open Access even during the period when the Distribution Licensee was unable to supply power to the said Consumer and had imposed power cuts on the consumer?  Read more
  • Iran offers gas at $2.95, India to invest Rs 1 lakh cr: Nitin Gadkari  Read more
  • Electricity contract employees to go on strike from tomorrow  Read more
  • PGICL, Sterlite, Adani in fray for two transmission projects  Read more
  • OilMin draws up priority list  Read more
  • Welspun Renewables commissions 19MW solar plant in Karnataka  Read more
  • New experts panels fast tracks dirty energy projects  Read more
  • CBI makes surprise check at Barh Super Thermal Power Station  Read more
  • CERC approves tariff for transmission assets associated with Parbati III HEP for 2009-2014  Read more
  • Heavy rain lashes Telangana; power, water supplies hit  Read more