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RSTV: THE BIG PICTURE- INDIA’S COAL SECTOR REFORMS

RSTV


Introduction:

The Centre launched the auction of 41 coal blocks for commercial mining, with the Prime Minister formally giving the green signal and expressed optimism that it will help in reducing dependency on imports. The move is aimed at reviving the auction process, which has remained in limbo with only 31 coal blocks having been auctioned since 2014, when the NDA had first come to power on the promise of bringing transparency in the sector in the aftermath of the ‘coalgate’ scam. Modi said that the Centre has allowed commercial mining under its Aatmanirbhar Bharat package, with the aim of making India among the biggest exporters of the dry fuel. He also stressed on the irony that India is the second largest coal importer, despite having the world’s fourth largest coal reserves and being the second largest producer

Coal sector in India:

  • Despite having the world’s fourth largest coal reserves, India imported 235 million tonnes (mt) of coal last year, of which 135mt valued at Rs.171,000 crore could have been met from domestic reserves.
  • India’s state-run coal giant has been unable to meet growing demand despite abundant resources.
  • The South Asian nation depends on Coal India for more than 80 per cent of its domestic production and the miner has consistently fallen short of production targets in the last few years.
  • The government has been progressively liberalizing the coal sector over the last several months to attract new investments, and getting rid of this archaic end-use restriction was a key step.

Procedure established till now in Coal Mining:

  • Until now there were restrictions on who could bid for coal mines only those in power, iron and steel and coal washery business could bid for mines and the bidders needed prior experience of mining in India.
  • This effectively limited the potential bidders to a select circle of players and thus limited the value that the government could extract from the bidding.
  • Second, end-use restrictions inhibited the development of a domestic market for coal.
  • The ordinance essentially democratises the coal industry and makes it attractive for merchant mining companies, including multinationals such as BHP and Rio Tinto, to look at India.
  • The move was overdue considering that the country spent a huge Rs.1,71,000 crore in coal imports last year to buy 235 million tonnes; of that, 100 million tonnes was not substitutable, as the grade was not available in India.
  • But the balance 135 million tonnes could have been substituted by domestic production had it been available.

What is commercial mining?

  • Commercial mining allows the private sector to mine coal commercially without placing any end-use restrictions. The private firms have the option of either gasification of the coal or exporting it.
  • They can also use it in their own end-use plants or sell them in the markets. The government expects more than Rs 33,000 crore of capital investments over the next five to seven years in the sector.
  • Further, with 100 per cent foreign direct investment allowed in the coal sector, global companies can also participate in the auctions. The complete freedom to decide on sale, pricing, and captive utilisation is expected to attract many private sector firms to participate in the auction process.
  • The government expects these steps will generate employment and reduce India’s import bill.

Why it is a transformative reform?

  • Over the years, our coal imports have been steadily rising to meet our domestic demand. In the wake of recent disruption of global supply chains and India’s call for self-reliance, it is imperative that we allow our private sector to mine coal in India and for India. With nationalised coal mines failing to meet our demand, commercial coal mining is the only panacea for India to get rid of coal imports, achieve energy security and reduce import bill.
  • Commercial mining licences with regulatory oversight and monitoring will facilitate employment opportunities for tribal communities and local populations.
  • The revenues of states are bound to receive a substantial jump when commercial mining starts in these states
  • Entry of private sector in the coal sector has immense forward and backward linkages. The backward linkage of transportation and physical infrastructure is bound to create clusters of growth. In forward linkage, sectors such as cement, fertilisers, steel, and aluminium will bolster tremendous growth.
  • The entry of the latest global mining technology, management and competition is bound to revamp the sector from inside.
  • For many, the blanket objection is the adverse impact on the environment. They should realise that India continues to import coal. At least when we are mining coal within the country, we can take all the necessary precautions.

Was the private sector never allowed in mining?

  • Private sector participation was permitted until the early 1970s. The Indira Gandhi government announced the nationalisation of the coal blocks in two phases between 1971 and 1973.
  • The Modi government’s reforms will effectively end state-owned Coal India’s monopoly over mining and selling of coal.

Is this the first attempt by govt to open up the sector?

  • After the Supreme Court cancelled the coal block allocations made to the private sector by the Congress-led United Progressive Alliance government in 2014, the Narendra Modi dispensation had brought in the Coal Mines (Special provisions) Act of 2015 to return these coal blocks to the private sector through auctions.
  • But there had been end-use restrictions and the private sector was not allowed to trade into the market making it unattractive for the private sector. Further in 2018, private sector firms were allowed to sell upto 25 per cent of the output in the market, but this also saw a lukewarm response from the private sector.
  • Meanwhile, sectors like power, aluminium and steel are likely to be the biggest beneficiaries with enhanced availability of coal.
  • India imports nearly 250 million tonnes of coal from other countries despite having the world’s fourth largest coal reserve.
  • The government is hoping that the involvement of the private sector will increase production and make India self-sufficient in meeting its internal coal requirements.