Government To Allow Mining And Selling Of Coal Blocks To Private Companies

The Logical Indian Crew

February 21st, 2018

Courtesy: Business StandardReuters | Image Credits: Khabar IndiaHindustan Times

In a historic decision, the Union Cabinet announced on February 20 that the Coal sector will be opened for commercial mining by private companies. This means that Indian conglomerates like Adani Enterprises as well as international miners like Rio Tinto, BHP Billiton and Peabody Energy would now be able to bid by offering price per tonne of coal. Coal Secretary Susheel Kumar says the bidding will be done online. He also added that the government will not get any share from commercial mining.


How will this announcement affect the Coal sector?

Piyush Goyal, the Minister for Coal and Railways said, “The quality of coal would improve with commercial mining and imports would come down. We want India to be self-sufficient in coal. The move aims to improve the ease of business doing in India.

Talking about the various steps taken to improve the coal sector, he said, “The government has taken several measures in coal sector which will enhance competition, bring efficiency in production, reduce import, save foreign exchange and generate job opportunities.

Susheel Kumar added that there will not be an end cap on the price of the coal. He said, “There will no end-use and price restriction. It would be up to the players to bring down prices in the open market.

On being asked whether companies would be allowed to sell coal abroad, Goyal told Reuters, ”I have no problem (with exports), but nobody is going to take our 45 percent high ash coal.”

The official statement issued in this regard talks of absolute transparency, ensuring ease of doing business and use of natural resources for national development. This move is anticipated to create direct and indirect employment in the coal-bearing areas. Adding that this move would especially benefit the Eastern states, the official statement said, “As the entire revenue from the auction of coal mines for sale of coal would accrue to the coal-bearing states, this methodology shall incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants including tribals.


Experts call it a positive move

This decision is met with positive responses from experts. Kameswara Rao, the partner at consultancy PwC told Business Standard, ”Power generators can now source commercial to improve margins and availability. Further, as merchant power prices fall, power utilities and manufacturing industry, too, will benefit from lower energy costs.”

On being asked whether this move would become a threat to Coal India, Piyush Goyal said that it would instead help it as competition would ensure efficiency and that commercial mining will not have any bearing on CIL’s production target. Coal India aims to reach one billion tonnes of production in 2019-2020.

A K Khurana, director-general, Association of Power Producers, told Business Standard, “We hope the government will learn from earlier auctions and make conditions/regulations conducive for competitive and sustainable price discovery. The objective of auctions would need to shift from revenue maximisation to productivity and sustainability.


Major reform since nationalisation of the coal sector in 1973

This decision is being hailed as a major reform since the nationalisation of the coal sector in 1973. This will end the four-decade monopoly of PSU Coal India Limited (CIL). CIL currently accounts for over 80% of the domestic coal output.  As of now, the private sector is allowed coal mining for captive use only.

As per official data, as of February 19, about 46 major thermal stations were said to be facing critical stocks of less than seven days.

Coal secretary Susheel Kumar had first announced the government’s decision to open coal sector to private companies on February 2, 2017, and on March 27, released a discussion paper on “Auction of Coal Mines for Commercial Mining.”

The decision to all private companies was taken by the Cabinet Committee on Economic Affairs (CCEA) under the chairmanship of PM Modi.

Earlier National Democratic Alliance (NDA) had sought to replace the administrative allocation of coal blocks by auction in the Coal Mines (Special Provision) Act, 2015 after Supreme Court cancelled 204 coal blocks allocated to various state and private companies, in 2014.

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