Opening up commercial coal mining for Indian and foreign companies in the private sector, the Cabinet Committee on Economic Affairs on February 20 approved the methodology for auction of coal mines/blocks for sale of the commodity.
The government described the move as the most ambitious reform of the sector since its nationalisation in 1973. Coal accounts for around 70% of the country’s power generation, and the move for energy security through assured coal supply is expected to garner attention from majors including Rio Tinto, BHP, Vedanta, Anglo American, Glencore and Adani Group.
The auction — on an online transparent platform — will be an ascending forward auction whereby the bid parameter will be the price offer in rupees per 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 utilisation of coal from the mine, an official statement said on the decision taken by.
“This reform is expected to bring efficiency into the coal sector by moving from an era of monopoly to competition. It will increase competitiveness and allow the use of best possible technology into the sector,” it added. Public sector undertaking Coal India was so far the lone commercial miner in the country for over four decades. The company accounts for 84% of India’s coal output.
The methodology okayed on February 20 gives highest priority to transparency, ease of doing business and ensures that natural resources are used for national development, the 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, it said. States in Eastern part of the country will be especially benefited.
Coal Minister Piyush Goyal said the move will bring efficiency and competition in coal production, attract investments and best-in-class technology including for ‘safe and efficient mining’, and help create more jobs in the sector. He said the government was in the process of identifying some mid- and large-sized coal blocks for auctions for non-captive purposes, adding that the timelines for the same are yet to be fixed.
Kameswara Rao, partner and leader — energy, utilities and mining, PwC, said in a statement that “new owners of distressed assets will no longer worry about uncertain fuel supplies and can contract with commercial coal suppliers to revive their projects.” He added that “we will see industry consolidation, and rise of large vertically-integrated energy companies with interests in coal mining, power generation, transmission and distribution to retail supply. Mr. Rao said the volume growth and cost reduction from commercial coal development will keep import prices in check. However, he added that the government must auction larger blocks in sufficient numbers in order to attract new investment in high-capacity fleet and competition.
The official statement said the higher investment that the sector will now attract will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions.
According to the government, it had promulgated the Coal Mines (Special Provisions) Ordinance, 2014 in October 2014 for management and reallocation of cancelled coal blocks. It was aimed at ensuring smooth transfer of rights, title and interests in the mines/blocks along with its land and other associated mining infrastructure to the new allottees to be selected through an auction or allotment to government company, as the case may be, it had said.
That move followed the Supreme Court order in September 2014 cancelling 204 coal mines/blocks allocated to the various Government and Private Companies since 1993 under the provisions of Coal Mines (Nationalisation) Act, 1973. In a bid 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. 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, the government said.