In his Budget speech on Thursday, the Union finance minister P Chidambaram did well to indicate that imports of coal into India were soaring and could reach a staggering 185 million tonnes in the next three years. To check such growing dependence and augment domestic production, he mentioned that the government was evolving a framework for public-private participation with Coal India Ltd?the government-owned monopoly with exclusive powers to mine and market coal.

In making these observations, the finance minister was bang on target. If there is one single input that is holding back the country?s march forward, it is coal, which we have in plenty in our mother earth. But, over the years, through a web of policies, laws and other misadventures, we have tied ourselves into knots and turned our comparative advantage into a major constraint to growth. With over 250 billion tonnes of coal reserves, we are barely able to mine 540 million tonnes a year, and despite the domestic demand for coal growing by 8% annually, our output has been increasing at under half that level. In the last three years or so, CIL?s produce has virtually stagnated around the 350 million tonne mark. Little surprising that the imports of coking and thermal coal combined are expected to rise sharply from the current year?s estimated 135 million tonne and bestow upon us the dubious distinction of becoming the world?s second-largest coal importer despite being the third-largest deposit holder.

If a single causal factor for this dismal state of affairs were to be named, it would unambiguously be the continuation on the statute book of the deleterious Coal Mines (Nationalisation) Act, 1973, which, in a single stroke, did away with all private coal mining and marketing in the country and vested it all in the central government. And, not unexpectedly, it resulted in the creation of a behemoth CIL, which, a couple of years ago at the time of its maiden IPO, had gone to town proclaiming itself as the world?s largest coal miner. What it did not reveal was that its output per employee was the lowest in the world and that its produce consisted as much of non-combustible ash as usable coal! The subscribers to its equity also probably missed out that it was totally ill-prepared to move over to the globally-favoured practice of underground mining, which is less land-demanding, more environmentally-benign and results in extraction of better quality coal.

Hitherto all governmental attempts to woo private players in mining have remained stuck. After 40 years of exclusivity with CIL, the mining ability of domestic players has virtually vanished. The Rio Tintos of the world who are the need of the hour in India find the prevailing regulatory and business milieu too stifling to interest them to bring in their technology, proven experience and resources. They abhor the idea of being contract miners of CIL without any freedom in selling and pricing of the coal produced. They have also been spurning the invitations of private power, steel and cement-makers who have secured coal blocks for captive consumption for the same set of reasons and because of the fact that their operations are too small.

Recently, CIL floated the idea of getting private miners by entering into agreements for mining, development and as operators (MDO) with them. The proposal still remains on the drawing board, and on several important issues there are reported differences amongst the authorities who are examining this idea. While the ministry of coal would like the private partners to themselves secure the numerous statutory and other approvals and clearances to mine, including the most intractable environmental and forest clearances, the finance ministry is rightly of the view that it is easier for a government body to obtain these and then the coal-bearing assets should be offered to a private player. CIL, in fact, thinks that even the land should be acquired by the private entity wanting to come in, even though its ownership would remain with CIL, and under this PPP model it is proposed to be leased for only 10 years. If such unbusiness-like conditions and onerous responsibilities are sought to put on non-government actors, in all probability there would be little willingness shown in by serious players.

More importantly, Chidambaram himself said that for associating private players through PPP agreements the Coal Mines (Nationalisation) Act, 1973, may have to be amended. This has always posed severe constraints and the Union governments, in the past, have dithered about seeking Parliamentary approval for opening any windows for private players, leave alone for altogether repealing of the statute. The ruling and other political parties of the coal-bearing states in central and eastern regions and the Left, who now have much greater say than ever before in central law-making, have opposed all such attempts, primarily to protect the several hundred thousand employees of CIL and the numerous vested interests cum influence-wielders who have emerged around the prevailing set up. But changing the law is a prerequisite for getting in global professional firms as mining is a heavily capital-intensive activity with long gestation period. For them, a stable and predictable environment to enter into and operate necessarily includes a strong legal basis.

If the current government at the Centre is ready to bite the bullet, as can be reasonably adduced from the Budget, it might be better to consider the other option of allowing the credible private players through the front door into the coal industry rather than from the side. Most of them are unlikely to accept playing a second fiddle to CIL and would prefer complete autonomy in at least mining and transportation of their produce. To facilitate that, along the lines of what has been already permitted in the domestic oil and gas segments to considerable advantage, the coal law could be amended to henceforth insist upon all new blocks being awarded through a competitive bidding process in which eligible private parties are allowed to participate along with government-owned entities. CIL could keep and mine the assets already with it but for all additional ones it must compete with others.

With global mining companies coming in through this dispensation, the Indian consumer can be expected to benefit from the higher benchmarking of operating norms expected to come along with them, and which CIL and its subsidiaries will have to embrace in order to grow. Whether along with it allocation and pricing of coal can also be left to private players, desirable as it might be, perhaps may, at this stage, have to be deferred on grounds of political expediency of securing the requisite Parliamentary approvals.

The author, an energy specialist, is a former secretary in the Union ministry of commerce and industry