India and Coal:
- The story of coal in India has been long and eventful.
- Coal has powered the aspirations of a growing nation, lighting up four out of every five bulbs.
- Yet the supply of coal has lagged much behind the demand.
- The sector was dealt with another blow as the Supreme Court in 2014 struck down the allocation of 201 coal blocks for captive use, on charges of illegality.
Nationalisation of coal meant supply was not enough to meet demand:
- Nationalisation of coal in 1973 meant that domestic coal could be mined only by public sector companies.
- While state-owned coal companies did much to improve production, safety and prioritised employee welfare, the country’s coal demand continues to grow at a much faster rate.
- As a result, India with vast coal reserves, saw coal import growth of 23% CAGR from FY10 to FY14.
Reforming the sector:
- Since 2014, the union government has initiated a series of calibrated and sequential steps.
- To begin with, a transparent mechanism was set in place through a legislation, the Coal Mines (Special Provisions) Act, 2015, to return the blocks back to the industry via auctions.
Improved supply of coal:
- While in 2014, two-thirds of the major power plants had critical coal stocks of less than seven days, today, India is the second-largest producer of coal with its record production at 729 million tonnes (MT) in FY20.
- The coal stock at thermal power plants in the country has risen to its highest-ever level—over 50 MT, sufficient for 30 days.
- Coal India Limited (CIL), the world’s largest coal miner, has registered an unprecedented 140 MT increase in production during the last six years.
- The coal import rate has been reduced to 2% CAGR between FY15 to FY19.
But still coal imports continue:
- Despite improvement, India imported 251 MT coal in FY20, worth Rs 1.59 lakh crore, despite having the fifth largest reserves in the world.
Need to involve private sector in coal mining is clear
- It is clear by now that the private sector has to be brought in to fulfil the needs of the nation.
- The policy of allowing private coal mining to captive users has been in existence for a long time. However, it has failed to enthuse the private sector.
Now open auction of coal mines to the private sector announced:
- The government has now approved norms for open auction of mines to the private sector without any restrictions.
- This represents a paradigm shift for the coal sector, and in line with the prime minister’s vision to build Aatmanirbhar Bharat.
- The focus is to reorient approach from focussing on revenue maximisation to making maximum coal available in the market.
- The move is intended to help not only address India’s coal production needs, but also attract investment to add to our GDP while saving precious foreign exchange.
More liberalized regime:
- On the process side, the coal ministry has simplified the process of Mining Plan approval from 90 days to 30 days.
- Several unfriendly provisions have been removed or amended recently.
- For instance, the law earlier excluded companies not having mining operations in India from participating in the auctions.
- This provision has now been removed paving the way for local and foreign mining majors and non-mining ones, too, to participate in the domestic coal sector.
Will have transformational impact:
- This is a transformational move for several reasons.
- Global miners allowed: For one, global coal mining firms, which were so far forbidden from mining coal in India, can now invest and introduce their best practices.
- Boost domestic supply: Indian industry can invest in a commodity business where domestic supply falls short of the demand, opening up an opportunity to substitute 135 MT coal imports.
- The knock-on effect on sectors that use coal, like the steel, power and aluminium, is going to be significant.
Much bigger reform than allowing captive mining:
- Over the years, the government’s control on coal mining was reduced to the extent that private companies could mine coal for captive use.
- With the unlocking of the sector now, a coal-using company would be free to focus on its core business while procuring coal from professional miners.
- Mines will no longer be allotted on the basis of a ‘match’ with the needs of the single captive user.
- Rather, it will be auctioned out where the dictates of economic efficiency will prevail, and the consequent gains will be shared between the coal mining company and the coal buyer.
Equitable system of revenue sharing introduced:
- The government has introduced a more equitable system of sharing of revenues, moving away from fixed rates to an ad-valorem system.
- So when the prices go up, the miner shares more with the government, and if they go lower, he shares less.
- This is equitable for both the parties.
Importance of coal sector reforms:
- The coal sector reforms are not just about investments and improving coal production.
- They have the potential to create immense job creation opportunities and give a strong boost to the government’s Make in India programme, since coal mining operations require large machines and manpower.
- Besides, it will lead to the induction of new technology and competition in the sector.
- Consequently, the economies of coal bearing states like Jharkhand, Chhattisgarh, MP, Maharashtra and Odisha will also prosper, since all the revenue from these auctions will exclusively accrue to them.
Alongside reforms, Coal India will also be boosted:
- Over the recent years, the growth and prosperity of Coal India Ltd was ensures.
- CIL has been given a target of producing one billion tonnes of coal by FY24.
- For this necessary capital, coal blocks and an expeditious approval giving mechanism has already been put in place.
- Such bold moves have the potential to disrupt entrenched interests and could upset many.
- But, the India will press ahead with this, as these reforms will increase self-reliance, remove operational efficiencies and usher in an era of greater prosperity.
- With this, India is taking steps to lay a strong foundation for energy security in the country while providing large-scale employment and huge opportunities for investment in the coal sector.