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Kumar Mangalam Birla to turn Essel Mining into India's largest coal developer

MUMBAI: Aditya Birla group chairmanKumar Mangalam Birla is turning his private mining company Essel Mining into India's largest developer of coal mines by producing large quantities of coal from mines owned byCoal India Ltd.BSE 0.71 % The unlisted iron ore mining firm's joint venture companyBhubaneshwari Coal Mining Project

produced 11.4 million metric tonne per annum of coal from Coal India's subsidiary Mahanadi Coalfield's mine in Angul district of Odisha. 

"This is by far the largest coal mining output from a single location. And this was achieved in the very first year of 2012-13. We are targeting to achieve 20 mmtpa by 2015,"said Tuhin Mukherjee, managing director, Essel Mining. 

The focus on coal mining is an attempt by the group to strengthen the core business of Essel Mining and boost its profitability. The cash-rich mining outfit, which is fully owned by Kumar Mangalam Birla's family and started as a small mining firm in 1950, is cashing in on Coal India's move to outsource mining rights to a private developer. Since Coal India owns the mines, the developer will have to transfer the final output to the public sector company. 

Mukherjee, who joined the $40 billion group in December 2010 to lead the mining business after several years in Coal India, has built a 1000-strong workforce to handle coal mining projects. RS Malhotra, Mukherjee's former colleague in Coal India, has joined as the COO to manage and expand the business through mine-developer-cum-operator route (MDO). 

Essel Mining has also secured a mining contract from Coal India's arm Eastern Coal fields to develop 17 mmtpa in Jharkhand. As the country faces a shortfall in coal production, public sector coal majors such as Coal India has been taking the MDO route to ramp up production. NTPC's Pakri Barwadih mine, Pars East-Kente basin owned by state utilities are among other coal assets given for development through the MDO route. The new business model helps companies like Coal India to focus on business development.

The private contractor has to go through the laborious process of planning, processing and evacuation before the final output is delivered. For instance, joint venture company Bhubaneswari Coal Mining has removed 10.77 million cubic meters of rock to produce 11.44 mmtpa of coal. The MDO model is likely to metamorphose into a public private partnership. 

Finance minister 
P Chidambaram announced in his budget speech that the government is working on a policy to usher in public-private partnership to reduce dependence on imported coal. The new policy will have Coal India as one of the partners, he had said. 

"Though Coal India has abundant mine reserves, it has not been able to boost production in a big way. While its production was around 6% during FY 2012-13, it posted only marginal growth during the three successive financial years before the last financial year. ''The only way to guarantee adequate coal supply to consumers like power and fertilisers producers is by ensuring private sector participation. The policy makers, however, should develop the right model to bring transparency. They can look at offering equity in the project based on certain milestones. Private sector participation will lead to faster execution," said Sonam Udasi, head, research, 
IDBI Capital

. ''Global mining majors are looking to gain a foothold in India through government partnerships. But, the lack of equity participation in projects is holding them back. 

"Economic ownership should be clearly defined for global participation in the mining sector,"said an industry expert who does not want to be quoted. 

Majority of India's huge mineral resources were owned by private sector players till 1970. The first sign of government control emerged in 1971 when the coking coal assets were nationalised except for mines owned by 
Tata Steel and Steel Authority of India

. This was followed by nationalisation of thermal coal assets in 1973 except for the assets owned by Tata Steel and Damodar Valley Corporation. All these assets were consolidated under a single entity to form Coal India in 1975.