The government needs to open the coal sector to private competition if it wants to reform the industry. With coal accounting for more than 50% of India?s primary energy consumption, the sector cannot be allowed to remain the preserve of public sector producers that are mired in inefficiencies.

Fuel security remains a serious concern for the power sector, given the ambitious capacity addition envisaged by the government in the coming years over which power shortage will keep growing otherwise. Admittedly, the government has opened up the oil and gas sector to private competition. But public sector coal companies are still insulated from such competition.

The result is that these government-owned coal producers have not shown any urgency with regards to raising operational efficiency and bringing down production costs. Furthermore, they have failed to step up production to meet the country?s rising coal demand.

Because Indian utilities are reluctant to go in for long-term contracts for importing coal to meet the domestic fuel shortage for their power plants, there is not much pressure on public sector coal producers from international suppliers either.

The Integrated Energy Policy 2006 suggested that the government amend the Coal Mines Nationalisation Act to allow entry of private players into the coal sector. However, the government showed reluctance to do this. Instead, it has followed a piecemeal approach in opening the sector to private players. It has allowed entry of private players only through captive route and even this route is laden with end-use conditions. This means that private companies cannot undertake commercial mining.

Domestic coal production has improved to some extent after the government allowed entry of players through the captive route. Besides, the cost of coal production from captive mines is significantly lower compared to CIL. However, under the captive dispensation, private players can only make a limited contribution. If given a level playing field vis-?-vis public sector coal producers in allocation of commercial mines, the private sector can play a much bigger role. But the government remains hesitant about promoting competition in the coal sector even though it has enjoyed positive experiences as far as opening up the oil and gas sector is concerned.

The introduction of auctioning route for allocation of oil and gas acreages has brought a dramatic change in the domestic oil and gas exploration sector. Under the national exploration licensing policy (Nelp) dispensation, the sector has seen investment inflows of more than $10 billion. Besides, this has also forced national oil companies ONGC and OIL to improve their performance.

Earlier, the government used to allocate oil and gas acreages to ONGC and OIL on a nomination basis. The sector was off-limits to private players. In the absence of competition, national companies became lethargic. The result was that the country?s oil and gas production started stagnating. This trend has now been reversed.

We have seen several major discoveries in the blocks allocated through the auction route. We have seen the addition of oil and gas reserves of more than 600 million tonnes of oil equivalent (mtoe) through discoveries in acreages allocated under Nelp. The impact of these discoveries is also reflected in the improved performance of sectors like fertilisers and power, which use natural gas as feedstock or fuel.

After Reliance Industries Ltd started production from its D6 block in the Krishna-Godavari basin, the fertiliser sector has seen a jump in its production. Besides, increased gas availability has also helped the sector to reduce production costs. Subsequently, the government?s fertiliser subsidy bills have come down.

It is not that only private players like Reliance Industries Ltd and Cairn India have made big discoveries in blocks allocated through Nelp bidding. Even Gujarat State Petroleum Corporation, a public sector player, has achieved spectacular success in its Krishna-Godavari basin fields.

There was a time when these national companies were unable to make the required investment in oil and gas exploration, even though they had huge cash reserves. But since the introduction of the Nelp regime, they have significantly improved their exploration performance. Now they are successfully competing with global giants for allocation of exploration acreages in India and acquisition of hydrocarbon assets abroad.