Government Set to Liberalise Commercial Coal Mining  

India will soon allow private companies to extract and sell coal after 40 years of price and production regulation in the coal sector. The government would accept industry demand to provide freedom of production as per market dynamics, under the new commercial coal mining framework, a senior official in the coal ministry told BloombergQuint.

Anjani Agrawal, the India leader for the mining and metals practice at consultancy firm EY, says the industry should be able to control production from a coal mine.

Production freedom will allow the industry to adjust coal production according to industry demand, thereby protecting margins. The existing coal mining guidelines have penal clauses, in case the miner suspends mining.

India currently allows private companies to mine coal under strict regulations for captive consumption and stated end use. Companies commit to an annual coal extraction quantity, and compete on price while bidding for coal mines. The bidder is also required to pay royalty to the state.

Coal extraction by the private sector has been plagued by allegations of corruption and discretionary allotment. The government auditor, comptroller and auditor general (CAG), claimed in 2012 that the government suffered a loss of Rs 1.86 lakh crore from coal blocks that were allocated on a nomination basis instead of competitive bidding. In September 2014, the Supreme Court scrapped the allocations of 214 coal mines, bringing private sector mining in the country to a standstill.

On December 17, 2015, Coal Minister Piyush Goyal informed the Lok Sabha that the government has auctioned 31 coal mines. “Out of 17 coal mines auctioned in Schedule II (ready for operation), 10 have commenced production or mine opening permission has been granted,” Goyal said in the parliament in May this year. The government auctioned these mines under the new framework set up after the apex court cancelled mines in 2014.

The Narendra Modi government amended the Coal Mines (Nationalisation) Act, 1973 under Schedule IV of the Coal Mines (Special Provisions) Act, 2015. This amendment also allowed private companies to carry out coal mining operations in India, for commercial sale or for captive consumption.

The Coal Mines (Special Provisions) Act, 2015 did have the enabling provision for commercial coal mining and the government is yet to operationalise this provision. Coal Secretary Anil Swarup has said that the low price of coal in the international market has forced the government to delay the auction of coal mines for commercial use.

Mining Industry's Stance

The mining industry wants the government's assurance that it will not interfere in production and marketing strategies of coal miners. The government should allow miners to tweak production at their discretion and not coerce companies to meet production targets if coal prices are depressed, an official at a diversified mining conglomerate, told BloombergQuint on the condition of anonymity.

Other demands of the industry will also be a part of the new commercial mining framework. Coal mines with at least 15 to 20 million tonne of reserves will be put on the block, a senior coal ministry official told BloombergQuint. Further, the industry demand of long-term mining leases of 20 to 25 years may come under the ambit of the new framework.

While the Modi government is yet to officially announce opening up the coal sector, policy initiatives point in that direction. In March this year, the coal ministry announced a list of 16 coal mines to be allotted to state government-run companies. Coal from these mines will be sold without any of the preconditions imposed on coal from auctioned or even previously allocated blocks.

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