To reform, coal sector needs pvt hands and a little push

For a government grappling with high inflation and continuing the growth story, coal sector reforms may prove to be the magic wand it needed to carry on with the splendid economic performance.

Many believe that reforms in the coal sector, particularly private sector participation, could be the panacea. But, many attempts by the government to usher in changes in the sector had faces with stiff opposition.

Even the Economic Survey 2007-08 has pointed out that The Coal Mines Nationalisation Act needs to be amended to allow regulated private entry into coal mining. Private old coal mines ought to improve recovery of ?in-place? reserves by 5-10%, subject to a professional independent regulator for safety and environmental issues, it has said.

A proposal for amending the Coal Mines (Nationalisation) Act, 1973 to allow non-captive coal mines was approved by the Cabinet on February 11, 1997. However, due to stiff resistance from several quarters like the labour unions, concerns of unscientific mining and possible labour exploitation, it took more then three years to even formulate the required Bill for introduction in Parliament. Finally, after completing the prerequisites, the Coal Mines (Nationalisation) Amendment Bill, 2000 was introduced in the Rajya Sabha in the year 2000. However, the Bill is yet to be passed even after two governments and eight years.

?The issue is a sensitive one. The political parties and labour unions vehemently oppose such moves and it is difficult to get such a bill passed,? said a senior coal ministry official. He added there was little hope of passing the bill anytime soon and reforms, if any, were likely to be done in a calibrated manner.

The most important legislative enactment in the history of the coal sector in India is due to the Coal Mines (Nationalisation) Act, 1973, which brought the coal sector firmly under the command of the public sector. It can be argued that coal and lignite are still under a strictly controlled regime and private sector is discouraged from coal mining.

The 1993 amendments in the Coal Mines (Nationalisation) Act (1973), has vested sufficient power with the Centre to selectively allow coal mining for captive consumption of any industries and sub-lease for coal mining to private parties in isolated small pockets not amenable to economic development and not requiring rail transport. Till December 2007, 79 private companies have been allocated coal blocks.

However, many argue this move is not enough. There is an increasing demand for coal, especially for power generation sector. CIL and its subsidiaries have a complete monopoly in the coal industry. Given the spur in demand, CIL and its subsidiaries will not be able to meet the demand and coupled with the fact that coal development projects have a long gestation period and are highly capital intensive.

The working group for coal and lignite has assessed the demand for coal at 731 mt in the terminal year of the 11th Plan, i.e. 2011-12. Indigenous coal supply projection in the terminal year of the 11th Plan is projected to be 680 mt. While CIL and Singareni Collieries Company Ltd (SCCL) are expected to produce 520.50 mt and 40.80 mt, other producers are expected to produce 118.7 mt. The demand-supply gap is estimated at 51 mt, expected to me met through exports.

Moreover, two subsidiaries of CIL, Bharat Coking Coal Ltd and Eastern Coalfields Ltd are loss making. It is now mooted that all such subsidiaries should be made converted into separate entities and increase efficiencies by ensuring competition between them.

Notwithstanding the political hiccups, there is now a consensus across the political spectrum to proceed with the reforms. However, with general elections round the corner, the government is likely to try the unenviable job of converting largesse?s into votes and not initiate any reforms which will derail political equations.

The coal and mining sector is today governed by multiple Acts. In coal, lignite and minerals, several other legislations are required to be amended in order to complete the reforms set out in the industrial policy of 1991. Acquiring land involves several agencies under the Land Acquisition Act 1894, Coal Bearing Area (CBA) Act 1957 and the Forest Conservation Act 1980. The rules are in place and the states have been given substantial freehand. The differences lie in the marketing efforts of the states.

Also the roles of the state governments in licence, clearances are critical to the sector?s success. ?Procedural transparency in distribution of licence/lease, environment clearances, exit-policies, and incentives can be improved through meticulous documentation and creation of checklists,? says Kanhaiya Singh, senior fellow with National Council of Applied Economic Research.

Rajasthan, which is endowed with a variety of metallic, non-metallic and minor minerals, and has large number of private sector mining operators, has played a lead role in this and various other states are now trying to emulate such moves. The detailed Mineral Policy 2000 of Rajasthan is first of its kind by any state, which focussed on clarity of procedures, transparency and accountability.

Though a lot has been done to create easy provisions for FDI, similar efforts are needed in the area of rationalisation of tariffs on the imported technology and capital goods for investment projects.

Auctioning of coal blocks is now proposed as a substitute for the existing method. An official in coal ministry, however, argues the auctioning method can be fraught with the very same problems the present system has if people involved in the process do not have a change in mindset.

According to Singh, there are two main stumbling blocks in allowing full participation of the private sector in coal. First, it is the existence of the Coalmines (Nationalisation) Act, 1973. The second is the potential problem that is envisaged due to the ?Samatha Judgement?, which put restriction on private coal mining in the tribal areas by the Supreme Court.

?Both these problems need to be addressed by the legislative amendments,? Singh pointed out.

Electricity consumption per capita is one of the vital indicators of development. Besides, its direct role in the production process, it is also a need of every day life. According to World Development Indicators, during 2000, electricity consumption in India in terms of kilowatt-hour per capita (KWH-PC) was just 355 compared to 872 in China and 9,006 in Australia. At the same time the per capita income in 2000 in these countries were $460, $825 and $23,543, respectively.

Moreover, these three countries have a high percentage contribution from the coal-based electricity generation. The shares of the coal-based electricity production in India, China and Australia was 78, 76 and 78 per cent, respectively.

?This has happened because coal-based energy for these countries is cheap, cost effective and domestically available. In 1990, the shares of coal in these countries were 68, 73 and 77 percent respectively. The possibility of reversal of this trend in near future is remote,? said Singh.

It means that India generates more income per unit energy consumed then China and an emphasis on increasing energy intensity per capita could lead to faster growth, he added. Therefore, if India aims at a per capita growth rate of 8%, it may be reasonable to suggest that the electricity demand will grow at about 10%, double the rate at which coal production is growing at the moment for the country?s largest coal producer, Coal India Ltd (CIL).