"In order to attract private investment in the coal sector, financial incentives and concessions as applicable to infrastructure industries like power and telecommunication sector etc, would need to be extended to this sector," the commission said in its `action plan for rapid improvement in physical infrastructure'.

Such incentives would facilitate increased market borrowings and easy access to capital market for coal companies, the action plan said. "The project cost would also come down as a result of lower import duties on plant and machinery which forms a major part of the cost of projects," it said.

The plan panel also said it was imperative to bring in necessary legislative changes to the existing legal framework to facilitate private sector participation in coal productionand distribution.

At present the Coal Mines (Nationalisation) Act, 1973, bars private investment in coal mines except for captive mines. The bill to privatise the coal sector is likely to be introduced in parliament in the coming winter session.

The action plan called for formulation and implementation of more lignite projects and lignite-based power plants to avoid unnecessary coal transportation costs and stress on railway infrastructure.

It also came down against neglect of development of underground mines in favour of open cast mines.

"Immediate action is needed to increase the share of coal production from underground mines as increasing trend in open cast production is leading to fast depletion of reserves amenable to open cast mining," it said.

The action plan projects a total coal production of 370.6 million tonnes (mt) by the terminal year of the Ninth Plan from 295.87 mt in 1997-98, while the demand-supply gap would go up to 41.60 mt in 2001-02 from 8.84 mt last year.

However, accordingto the coal ministry there would be a surplus coal production of 10 million tonnes (mt) in the terminal year of the Ninth Plan period.

The difference is mainly due to large number of proposed independent power producers (IPPs), which have initialled the coal supply agreement, not included in the Ninth Plan.

The demand and production projections of the Planning Commission for the current fiscal year at 325.38 mt and 306.50 are also likely to go awry since lifting of coal was down by one million tonne in the first quarter of current fiscal compared to last year.