100% FDI In Commercial Coal Mining Skirts The Real Issues

India’s move to permit 100 percent foreign direct investment in commercial coal mining is expected to have little impact.

Freight trains loaded with coal at a railway station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Freight trains loaded with coal at a railway station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

India’s move to permit 100 percent foreign direct investment in commercial coal mining—over a year after it allowed mining by private contractors—is expected to have little impact.

The government’s decision, said multiple brokerages including Bank of America Merill Lynch and Emkay Global, fails to address some of the key regulatory issues such as delay in environmental clearances and land acquisition, lack of availability of coal rakes, among others. They cited little impact of this development over Coal India Ltd. and its monopoly, at least in the short term.

The world’s largest coal miner missed production target for 13th consecutive year in 2018-19. And it delayed the production target of 1 billion tonnes by two years till financial year 2024-25.

In a bid to deregulate the coal sector, the government on Wednesday allowed 100 percent FDI in commercial coal mining via automatic route. It had allowed commercial coal mining by private players since February 2018—a move which is yet to bear any fruit since local players like the Adani Group, Tata Group and GMR Group evinced little interest.

Chief Economic Adviser Krishnamurthy Subramanian had last week expressed disappointment with the quantum of coal produced in the country. Coal production cannot be increased in the country till Coal India has the monopoly, he told PTI.

“Let me illustrate with an example, we have a lot of coal in the country. Our annual target is 1,000 million tonne, but we produce 600 million tonne. We import a lot of coal today. What is required to be done is to ensure that we produce 1,100 million tonne.”

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Coal India’s Troubles

While Coal India’s production grew the most in three years and just missed its output target in FY19, the miner has struggled due to several issues over the past few years.

The company, in its FY19 annual report, said that of the total 120 projects it signed, 54 are delayed because of pending environmental and forest clearances and possession of land. Besides, hurdles related to resettlement and rehabilitation, contractual issues and shortage of rakes are also to be blamed for underperformance, it said.

Brokerage View

Opening up the coal sector to FDI or private players to increase efficiency and reduce imports is laudable, but the measure is devoid of a solution to the original problem of delay in environmental and forest clearance and possession of land, Bank of America Merill Lynch said.

This proposition would take a long time to be implemented due to regulatory concerns surrounding the sector, it said.

“There is a high risk of delay in implementation of these measures due to lengthy regulatory approval and land acquisition process. Time-bound execution remains to be key for an impact on the domestic coal supply outlook over the long term.”

Echoing a similar view, Emkay Global said apart from environment clearances and land acquisition process, the other key issue is the availability of rakes, which are in short supply and one of the major concerns for Coal India.

SBI Securities, too, said that removal these obstacles would only streamline the process and yield the required results.

Vedanta Resources Ltd. Chairman Anil Agarwal, who expressed interest in bidding for coal mines, suggested that the government should ensure one-window clearance for swift action on this initiative.