Commercial coal mining set to make covert entry

Written by Subhash Narayan | parul | Parul Chhaparia | New Delhi | Updated: Sep 29 2011, 07:12am hrs
Stumped by political opposition to letting private companies into commercial coal mining, the government has found a way to achieve almost the same without having to face Parliament. It is planning to allot captive coal blocks to private miners like BHP Billiton, Rio Tinto and Sesa Goa on the condition that these firms have tied up with approved end users for supply.

Currently, captive blocks are allotted only to end-users like cement, steel and power companies. The move is expected to bridge the widening demand-supply mismatch for coal, leading to a surge in imports which are expensive.

Commercial coal mining was nationalised in the early 1970s and is not open to private firms. State-owned Coal India, which went public early this year, produces over 80% of the country's coal output (433 million tonnes in 2010-11). A few public sector entities like state power companies command over 10% and private end users the rest.

Under the captive mining policy, which has received a recent push, coal blocks are offered the private players in approved end-user segments like cement, power, steel, syngas and liquefaction. These firms, in turn, are free to form joint ventures in mining. Even under the auction route, only these sectors are eligible to participate.

We have agreed to get fresh legal opinion on allowing independent mining firms to take part in auctions for captive blocks, said a coal ministry official.

Once we get clarity from the law ministry, modalities to let independent mining firms bid for captive coal blocks would be included in the guidelines on auction of coal blocks, said the official. An earlier opinion from the attorney general had encouraged government to include mining firms in auction of captive coal blocks.

The proposal aims to end shortage of domestic coal with larger private sector participation. As per an assessment by the Planning Commission, India will need to import 200 million tonne of coal by 2017 as domestic production won't be unable to meet industry demand.

The proposal has already been endorsed by the committee on allocation of natural resources headed by former finance secretary Ashok Chawla and approved by the finance ministry and a committee headed by the secretary, department of economic affairs. There is wide approval that independent miners could be allowed in captive blocks without interfering with the provisions of the Coal Mines (Nationalisation), Act, 1973.

Coal should be treated as an industry and companies given full access, not a conditional nod. It would be difficult to participate in an auction without doing a self-assessment of coal blocks, said an official of a multinational mining company who did not want to be identified.

The government has earlier considered liberalising the coal sector by opening it for commercial mining, but is fearful of a possible backlash from workers and opposition from political parties. The move will provide yet another avenue for private sector involved in mining activity. It will help bring new mining technologies and step up investment, said an expert in the sector.

Changes in captive block allotments will let independent miners strike supply contracts with more than one approved user. They will also have the freedom to charge market rates for their coal. As 100% FDI is allowed in captive coal mining in specified sectors, it will apply even if the block is operated by a mining company and user companies.

Since 1993, over 208 coal blocks holding around 50 billion tonnes reserves have been allocated for captive users. However, only about 30 blocks have started production, mining just about 40 million tonnes of coal against the potential of over 200 million tonnes.

Planning Commission estimates that domestic coal production will grow to 770 million tonnes by 2017 on the basis of projected annual growth of around 7%; but by then, demand would soar to 1,000 million tonnes, requiring companies to import 200 million tonnes. For the current Plan (2007-12), the Commission had earlier estimated that coal production will reach 680 million tonnes by 2011-12, but the estimate was later scaled down to 630 million tonnes in a mid-term appraisal. Later, it was revised further down to 554 million tonnes.

Production shortfall in the current fiscal, the final year of the 11th Five-Year Plan (2007-12), is projected at 142 million tonnes, with domestic output likely to touch 554 million tonnes.