Reforms in India’s coal sector- Part I

ECONOMY/ GOVERNANCE

Topic: General Studies 2,3:

• Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

Reforms in India’s coal sector- Part I

Context: The kick-starting of commercial coal mine auctioning is a fundamental shift in Coal sector which will help in realizing the vision of Atmanirbhar Bharat. 

Did You Know?

• India is having the fifth largest reserves of Coal in the world.
• India is the second largest producer of coal with its record production at 729 million tonnes (MT) in 2019-20

A brief History of Coal Sector in India

• Coal sector was Nationalised in 1973 which meant that domestic coal could be mined only by public sector companies.
• While State-owned coal companies improved production, safety and prioritised employee welfare, the country’s coal demand continued to grow at a very faster rate and often neglected modernization of mining technologies
• Post liberalisation reforms in 1993, the government decided to allocate coal mines to various players for captive consumption (in captive mining coal is taken out by a company for its own use and it won’t be able to sell it in the market).
• Despite private sector participation in a restricted manner, state run Coal India Ltd continued to dominate the market (but with inefficiency)
• During the high growth years of 2000s the increasing demand of Coal could not be fulfilled by the state run Coal India Ltd., leading to higher demand-supply gap. 
• Increased imports: Demand Supply gap, procedural delays, environmental clearances led to increase in imports – the CAGR of coal import from 2009-10 to 2013-14 was 23%
• Coal Auction Scam: The CAG report followed by the Supreme Court verdict in 2014 resulted into cancellation of allocation near all coal mines allocated after 1993.

Reforms undertaken post 2014

• Coal Mines (Special Provisions) Act, 2015. enabled allocation of coal mines through transparent auctions

• In February 2018, Cabinet Committee on Economic Affairs permitted entry of private firms in commercial coal mining in the country
• In April 2018, The Ministry of Coal has launched UTTAM (Unlocking Transparency by Third Party Assessment of Mined Coal) Application for coal quality monitoring.
• Ministry of Coal also developed Online Coal Clearances System to provide a single window access to its investors to submit online applications for all the permissions / clearances and approvals granted by Ministry of Coal.
• Coal Allocation Monitoring System (CAMS) was also developed to monitor the allocation of coal by CIL to States, States to State Nominated Agencies (SNA) and SNA to such consumers in a transparent manner.

Recently announced Reforms in Coal Sector- Easing the process

• Commercial mining of coal allowed, with 41 blocks to be offered to the private sector
• The coal mines being auctioned are located in Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra and Odisha. They include partially and fully explored mines. 
• The coal ministry has simplified the process of the mining plan approval process from 90 days to 30 days. 
• In previous auctions, only end users of coal, such as companies in the iron and steel and power sectors, were permitted to bid on coal blocks. This restriction has been done away with.
• Also, the law earlier excluded companies without mining operations in India from participating in the auctions. This bar has been done away with, paving the way for local and foreign mining majors and non-mining ones, too, to participate in the domestic coal sector.
• The government has introduced a more equitable system of sharing 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 decrease, he shares less.

Note: The benefits of the above reforms and the challenges which lay ahead will be dealt in part-II of the article

Connecting the dots:

• 2G Scam and Spectrum auction
• Controversial Coal Mining project by an Indian Company (Adani) in Australia