Government to monetize Rs.75,220 crore of coal sector assets

With the disinvestment revenues under pressure, the government was looking for an alternative to bridge the receipts gap. After the LIC listing, it is apprehended that selling PSU stocks could become that much more difficult. BPCL is already in the back burner and the government has shifted its focus more towards monetization of key infrastructure assets.

In FY23, the government plans to monetise assets worth Rs.75,220 crore in the coal mining sector, which would straddle a number of different asset franchises. Here is how.

The bulk of the contribution will still come from the monetisation of coal blocks. This is likely to generate revenues to the tune of Rs.52,200 crore in FY23. Next in the queue would be the monetization of the projects on a mine developer and operator (MDO) model.

This is likely to generate another Rs.20,320 crore. For the balance, the government will get around Rs.2,000 crore from discontinued mines while another Rs.700 crore will come from the focused monetization of the coal washeries. The washeries reduce calorific content of coal.

This is part of the grand plan of infrastructure monetization that the government had announced last year and the experience has been fairly positive. For instance, in FY22, despite the fairly tough macroeconomic situation, the government earned total revenues of Rs.40,090 crore in FY22.

That was more than 10 times the target originally envisaged to be raised from coal monetization. While the monetization figures are tentative, based on last year performance, achieving Rs.75,220 crore may not be too tough for the government.
 

As per the Union Budget statement of estimated receipts, the total amount targeted to be raised from coal demonetization is just about Rs.6,060 crore. So, the government will actually end up raising a multiple of this amount via the coal monetization route.

For now, the BPCL divestment has been put off. Even the Hindustan Zinc divestment may face some serious valuation issues since the stock prices of most of the mining and metal stocks have corrected sharply in the last few weeks. Coal monetization can easily bridge the gap.

The experience of FY22 can provide a good case study for the feasibility of the coal monetization idea. In FY22, the total monetization of coal was to the tune of Rs.40,090 crore. Out of this amount, Rs.28,986 crore came from coal blocks and Rs.9,593 crore came from the MDO model.

In addition, the government also earned Rs.1,512 crore from the monetization of its Coal Bed Methane (CBM) projects. In the previous year, a total of 39 coal blocks were effectively taken up for monetisation in order to boost the government coffers.

If you look at the broad framework of the National Monetization Pipeline (NMP) announced by the Modi government in 2021, a total of 160 coal mining assets are in the coal monetization pipeline between the fiscal years FY22 and FY25.

Apart from 17 MDO projects, these also include the establishment of 3 coal washeries, 1 coal gasification plant, 35 identified first-mile connectivity projects for building coal silos etc. In all, a total of 761 mineral blocks are expected to be put on auction during FY22 and FY25.

The crux of the National Monetization Pipeline (NMP) was that there was a lot of value hidden in the infrastructure sector, especially sectors like coal mining, roads, railways, power infrastructure etc.

One of the best ways to fund future infrastructure outlays is to make these infrastructure projects resource generating through a proper plan to monetize the cash flows by bringing in like-minded private privatization. Now, it remains to be seen if the coal model can be extended to other infrastructure projects too.