Need low royalty and fast clearances to benefit from new policy
When the government came out with a new coal auctions policy after, in 2014, the Supreme Court cancelled all coal licences on grounds of there being no objective criterion for their award, most expected commercial mining to be allowed. Instead, the government allowed private miners, but only on an actual user basis—that is, a steel manufacturer could be given a coal mine, but not a merchant miner. The policy made little sense since, the world over, there are big mining firms that do not produce metals—indeed, since these specialist firms are more efficient, this would have kept prices low; the government, at that time had argued that commercial miners mustn’t be allowed while there was a shortage of coal since that would jack up prices. So, in Australia where commercial mining is allowed, the increase in reserves over the past few decades has been many times that in India. Indeed, when the private sector Cairn Energy was allowed to start prospecting for oil, it made much more discoveries than the public sector ONGC and it accounts for a fourth of India’s oil production today.
Within a decade of selling the public sector Hindustan Zinc to Anil Agarwal’s Vedanta, the firm’s production rose from 1.5 lakh tonnes to 1.2 million tonnes and its reserves from a few years of production to over 30 years. And within a few years of Rio Tinto mining for diamonds in Madhya Pradesh, it found more potential diamond-bearing sites than PSU miners had found in decades. Which is why, the government’s decision to finally open up coal mining to commercial miners has to be lauded. This is a sector that has a lot of export potential, can boost local production of important metals and has the potential to create millions of jobs.
As Vedanta chairman Anil Agarwal puts it, despite having a similar geology to North America, Latin America, Australia and South Africa, India produces only around a fifth of its natural resource requirements. With 3.5 billion tonnes of bauxite reserves—the third-largest in the world—Agarwal points out, India produces less than two million tonnes of aluminium; China has no bauxite reserves and produces 20 million tonnes of aluminium. But allowing commercial coal mining and it being a success are two different things.
Vedanta’s sad experience in Niyamgiri shows that getting clearances is a nightmare. And as Coal India has pointed out in the past, it could almost double its output if it could secure the necessary forest/environment approvals. Even more important is to get the levies right. Most mining firms have, in the past, protested about India’s high mining levies, including government royalties, on top of which there were contributions to the district mineral foundation. High levies have already played havoc with the telecom industry, and if these issues are not addressed, the same could happen to the mining industry.