Ending the 41-year-old monopoly of state-owned Coal India Ltd, the Union Cabinet Tuesday announced its decision to open up the coal sector to commercial mining by private entities. This will allow power, cement and steel producers to source fuel more efficiently.
The CIL, alongside another stated-owned company, is the only firm currently allowed to mine and sell coal. The rules, however, permit power, steel, cement and aluminium companies to produce for their own captive use.
The opening up of the sector is expected to usher in competition in coal supply, reduce coal imports and help stressed power plants to attempt a turnaround through better fuel management.
It comes at a time when 46 major thermal stations are facing “critical” stocks of less than seven days, as per official data for February 19.
The move to open up the sector was first announced on February 2, 2017 when Coal Secretary Susheel Kumar declared that the government would open up the coal sector for commercial mining. On March 27, the Ministry released a discussion paper on the topic of “auction of coal mines for commercial mining”.
Apart from opening up the sector to domestic players, this move could also see interest from multinational miners such as Rio Tinto, BHP Billiton and Vale.
A statement issued after the Cabinet meeting described the decision as “the most ambitious coal sector reform since the nationalisation of this sector in 1973”.
There will be no end-use restriction as far as output of the auctioned mines are concerned. Under private commercial mining modalities approved by the Cabinet, coal blocks will be allocated by “ascending forward auction” in which the winner will be determined by the price per tonne of coal offered to the state government where the mine is located. “There shall be no restriction on the sale and/or utilization of coal from the coal mine,” the statement said.
An enabling provision for commercial coal mining by private players was included in the Coal Mines (Special Provisions) Act, 2015, which the NDA government had brought in to replace administrative allocation of coal blocks with auction after the Supreme Court in 2014 cancelled 204 coal blocks allocated to various state and private companies.
The official statement said the methodology approved by the Cabinet gives highest priority to transparency, ease of doing business and ensures that natural resources are used for national development.
The move is also expected to allow the use of best possible technology in the sector, drive investments and create direct and indirect employment in coal bearing areas, it said. The government expects revenue from private commercial mining to help in the development of backward areas, especially in the eastern part of the country.