KOLKATA – A government-constituted panel formed with the aim of formulating a policy on private public partnerships (PPP) in the Indian coal sector was expected to draft a model framework for mine development and operations (MDO) contracts to address the reservations of foreign miners.

According to officials in the Coal Ministry, the draft MDO contract framework would be crucial to attracting private investors to collaborate with Indian miners like Coal India Limited (CIL), after several foreign miners expressed reservations over the investment opportunities that were being proposed.

One of the major sticking points raised by prospective foreign miners like Rio Tinto and BHP Billiton, which have expressed tentative interest in PPP business opportunities, was that the Indian government would be restricting such partnerships to contract mining and would not offer equity stakes in coal blocks to be jointly developed, the officials said.

According to these officials, foreign miners not keen on being restricted to just being contractors to CIL had put forth a suggestion to the Coal Ministry that the proposed PPP policy for the coal sector should offer foreign miners the option of investing in equity through special purpose vehicles between Indian and foreign miners, to be floated with the specific objective of developing an indentified coal block.

However, it was pointed out that incorporating such an option in the policy would raise a host of legislative hurdles, since the Indian Coal Nationalisation Act prohibited coal mining by private investors barring for captive use. Any attempt to circumvent this legislation would be almost politically insurmountable in the face of opposition from trade unions, officials said.

In fact, with the view to overcoming legislative hurdles and exploring options of financial incentives to investors, the government panel included representatives from the Finance and Law Ministries apart from the Coal Ministry. The panel had been set up as a follow-up of the announcement made in India’s yearly Union Budget 2013 seeking faster PPP businesses in the coal sector to boost production in the shortest possible time.

CIL, for its part, has drafted a model MDO contract framework; but based on reservations expressed by foreign miners, the company was scheduled to revisit the contract early next month.

India’s Planning Commission, in earlier communication with the Coal Ministry, had advocated that the PPP policy initiative and the MDO contract framework should not be left entirely to CIL but instead should be framed and vetted by an inter-Ministerial group and, thereafter, approved by the India’s Cabinet.

This, according to the Planning Commission, would enable the coal sector model to take into account the experience gained in different sectors and lessons that had emerged in PPP businesses in these sectors.

Courtesy: mining weekly.com