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Digging Deep

Digging Deep

Forty-four years after coal mines across India were nationalised, the government is inching closer towards allowing commercial mining of the commodity to meet the ambitious production target of 1.5 billion tonnes by 2020.

In the early 1970s, the Government of India took over the management of coal mines in two tranches. The process kick-started with the nationalisation of coking coal mines in 1971-72, followed by non-coking coal mines the following year. With the enactment of the Coal Mines Act, 1973, all mines were nationalised. The move was prompted on account of unscientific methods adopted by some private firms and alleged sub-human working conditions of coal miners. The only exceptions were the states of North-East India that are empowered by the Constitution to formulate their own policies with regard to natural resources in accordance with the local tribal laws. Since then, coal mining in India has been the monopoly of state-owned behemoth Coal India Ltd (CIL). The sector was partially opened up to allow private miners to undertake coal mining only for captive consumption with restrictions on sale of coal in the open market.

Forty-four years later, the government has announced its intent to allow commercial mining by private firms from the financial year 2017-18.

Addressing reporters in New Delhi in early February, Sushil Kumar, Secretary, Ministry of Coal (MoC), announced, ´The Coal Ministry has identified four blocks that will be bid out for commercial mining without specifying end-use for the mined coal.´ Elaborating on his statement, Kumar said, ´Next year in the coal sector, we will allocate 25 mines. Of these, two will be allotted and 23 will be auctioned, some for coking coal and some for sectors other than power, like cement and four for commercial mining.´ Four of the 23 mines to be auctioned will be earmarked for commercial mining.

Although details on the mines proposed for auction or bidding methodology to be employed are not yet available, the MoC will soon put out a consultation paper in the public domain to obtain stakeholder feedback. Earlier, the ministry had identified 16 reserves for the commercial mining plan during 2016-17. The proposal was, however, put on the backburner due to surplus coal availability.

Making the sector competitive
Welcoming the announcement, Pankaj R Patel, President, FICCI, terms it as a ´positive policy direction towards development of a market-based economy that will be supporting the growth of industrial sectors dependent on coal as fuel.´

´Commercial mining of coal is a forward-looking step that will lead to monetising of a natural resource and have the potential of boosting technology-aided private investments in the coal sector, while enhancing the market access of coal for the downstream industrial segments of power, steel and cement,´adds Patel.

In 2015, the Union government had incorporated provisions to facilitate entry of private entities into coal mining through the Mines and Minerals (Development and Regulation) Amendment Act, 2015. The legislation seeks to introduce transparency in award of mining licences after the Supreme Court in 2014 cancelled allotment of 214 coal blocks made since 1993 citing irregularities. The subsequent decision to allot seven blocks to state government entities for commercial mining is instanced as the first major reform in the coal sector in the recent past.

Moreover, a group of secretaries had recently recommended making the sector competitive by opening it up. The Coal Mines Special Provision Act of 2015 enables the government to do so.

Entry of private entities is expected to add to the revenues of coal-bearing states during the lease period or life of the mine as well as one-time upfront payment, which could be 10 per cent or more of the innate value of coal in the mine. So far, such states were earning only the royalty amount from private companies mining coal for captive use.

Fast tracking production
As per government estimates, coal demand in the country is expected to be in the range of 1.2 to 1.5 billion tonnes by 2020. Despite being the third-largest coal producing country in the world, India is dependent on imports to meet around 20-25 per cent of its coal demand.

Of the over 300 billion tonnes of coal reserves, around 90 per cent of them are made up of non-coking coal. But despite this, non-coking coal accounts for nearly 75-80 per cent of Indian coal imports. In order to meet this massive demand and reduce dependence on imports, the government has put coal production in the country on the fast track and has set a target of 1.5 billion tonnes of domestic coal production by 2020. To achieve this objective, the government has set a target of 1 billion tonnes for CIL by then. The remaining 500 million tonnes is expected to be achieved by other public and private sector producers.

For the country to reach this ambitious target of 1.5 billion tonnes, huge investment adding up to more than Rs 10 lakh crore is required in coal mining and its allied sectors like power, steel, cement infrastructure for logistics, and coal washeries. To improve coal output, the Ministry of Coal has drawn up a plan for each mine that includes evacuation, land acquisition, environmental clearance and law & order.

In their previous interactions with INFRASTRUCTURE TODAY, senior MoC officials have identified evacuation, environment and forest clearance, land acquisition and local law & order problems as the major challenges in coal mining. The MoC claims to be following a specific strategy to address these issues.

For instance, earlier all evacuation activities were being performed by the Railways. A decision has been taken, along with the state governments, to set up joint ventures in each of the concerned states. For these joint ventures, each evacuation line will be an independent profit centre. Similarly, the ministry is also considering mechanisation for improving the turnaround time in filling up rakes.

In December 2015, the government was forced to invalidate captive coal auctions due to poor response from steel and cement firms. The nine mines on the block in the fourth round received just 15 bids. The scanty response was attributed to increased domestic coal production, slump in international coal prices and financial stress in the steel and aluminium sectors. Therefore, the decision to restart coal block auctions has been taken in view of the rise in imported coal prices and signs of revival in economic activity.



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