India’s Coal Sector Reforms

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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.

In News: The Centre launched the auction of 41 coal blocks for commercial mining, with the Prime Minister formally giving the green signal and expressed optimism that it will help in reducing dependency on imports. 

• The move is aimed at reviving the auction process, which has remained in limbo with only 31 coal blocks having been auctioned since 2014.
• Centre has allowed commercial mining under its Aatmanirbhar Bharat package, with the aim of making India among the biggest exporters of the dry fuel. 
• India is the second largest coal importer, despite having the world’s fourth largest coal reserves and being the second largest producer. 

Coal Sector in India

1973: 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: 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 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

• 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. 
• 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.

Are the Reforms going to benefit India – How?

• Competitive Sector: It will lead to the induction of new technology and competition in the sector. 

• Revenue maximisation: The mines are expected to attract a capital investment of around ₹33,000 crore over the next 5-7 years, adding ₹20,000 crore annually to state government revenues.

• Increased Production: According to the coal ministry, these 41 mines are expected to hit a peak production of 225 mt, generating around 15% of India’s coal output in 2025-26

• Attract Foreign Firms: Global coal mining firms, which were so far forbidden from mining coal in India, can now invest and introduce their best practices. 

• Reduced Imports: Indian industry can invest in a commodity business that provides an opportunity to substitute 135 MT coal imports

• Knock-off Impact: With the unlocking of the sector now, companies using coal will be free to focus on their core business while procuring coal from professional miners.

• Better Utilization of resources: 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 based on economic efficiency.

• Increased job opportunities: It is expected to create employment generation for more than 2.8 lakhs people.

• Provides a boost to Make in India programme, since coal mining operations require large machines and manpower
• Benefits State governments: The economies of coal-bearing states like Jharkhand, Chhattisgarh, Madhya Pradesh, Maharashtra and Odisha will also grow since all the revenue from these auctions will accrue exclusively to them.

What are the challenges?

Federal Challenges: In a writ petition to the SC, Jharkhand has said the Centre’s decision to commence commercial mining process flouts Schedule-V of the Indian Constitution, which refers to the ‘scheduled areas’ falling under the state government. 

Social Impact Assessment: Jharkhand has further contested that there is need for fair assessment of the social and environmental impact on the huge tribal population and vast tracks of forest land in the state.

Weak Investment Appetite: The negative global investment climate prevailing due to Covid-19 is unlikely to fetch reasonable returns proportionate to the value of the scarce natural resource

Vulnerable to Foreign Control of resource: Covid pandemic and liquidity crunch with the domestic industries might make them uncompetitive in auction process where Global players with huge resources will also be participating

Environmental Challenges: One of the proposed auction of a mine site is near Maharashtra’s Tadoba- Andhari Tiger Reserve. The State government has raised concerns that mining at the site can lead to destruction of wildlife corridors.

Connecting the Dots:

1. Discuss the significance of coal as an energy resource. What reforms are needed to cure the ailing coal sector.
2. Coal sector reforms will make eastern and central India pillars of development. Discuss.
3. Essay: Energy Security of India