India opens up coal mining to private sector

This is a important measure as coal-based power generation capacity in India, which currently stands at 192 GW - 58 per cent of total national generation capacity - is expected to reach 330-441 GW by 2040

February 20, 2018

Union Cabinet has approved measures for auction of coal mines under the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957.

Opening up of commercial coal mining for private sector is the most ambitious coal reform since the nationalisation of this sector in 1973; This will aid transparency and ease of doing business.

The move will raise investment in the coal sector by tapping in private and foreign entities; Liberalisation to bring efficiency in coal sector by moving from monopoly to competition.

Measure will boost direct and indirect employment in the coal sector, while ascertaining energy security through assured coal supply, accountable allocation of coal and affordable coal.

The Indian Government has approved a plan to open up commercial coal mining sector to private investment. This liberalisation is the most ambitious coal sector reform since the nationalisation of the sector in 1973. The Cabinet Committee on Economic Affairs, led by by Prime Minister Shri Narendra Modi, approved the methodology for auction of coal mines and blocks for sale of coal under the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957.  This is a important measure as coal-based power generation capacity in India, which currently stands at 192 GW – 58 per cent of total national generation capacity – is expected to reach 330-441 GW by 2040.

The measure gives highest priority to transparency, ease of doing business and ensures that natural resources are used for national development. The auction will be an ascending forward auction whereby the bid parameter will be the price offer in Rs./tonne which will be paid to the State Government on the actual production of coal. There shall be no restriction on the sale and/or utilization of coal from the coal mine. This is expected to attract favourable response from the private sector as coal continues to be the most reliable source of fuel in the fast-growing economies of the developing regions. The move will also help check illegal trading of coal that has limited revenue generation from the sector, besides increasing pollution.

India’s apex court, the Supreme Court of India, vide its order dated September 2014, had cancelled 204 coal mines and blocks allocated to various Government and private Companies since 1993 under the provisions of Coal Mines (Nationalisation) Act, 1973. To bring transparency and accountability, the Coal Mines (Special Provisions) Bill 2015 was passed by the Parliament which was notified as an Act in March 2015. Now, enabling provisions have been made in the Coal Mines (Special Provisions) Act, 2015 for allocation of coal mines by way of auction and allotment for the sale of coal. So far, coal mines in the country were majorly being operated by state-controlled Coal India Ltd (CIL) which was set up in November 1975.

This reform is expected to bring efficiency into the coal sector by moving from monopoly to competition. It will increase participation and allow the use of best possible technology into the sector. The higher investment will create direct and indirect employment in coal bearing areas. This measure will ensure assured coal supply, accountable allocation of coal and affordable coal leading to affordable power prices for consumers. 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, especially those in the Eastern parts of the country.

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