Reforms in the coal sector are an ongoing policy evolution. The recent move to untether the sector marks a paradigm shift in the way business will be conducted.
By Pralhad Joshi
India is stepping on the gas today to lay a strong foundation for energy security in the country while providing large-scale employment and huge opportunities for investment in the coal sector. In line with the prime minister’s vision to build Aatmanirbhar Bharat, India is marking a fundamental shift to unleash the coal sector as commercial-mine auction kickstarts. The coal sector is at the cusp of a paradigm shift today as we reorient our approach from focussing on revenue maximisation to making maximum coal available in the market. The move will not only help address India’s coal production needs, but also attract investment to add to our GDP while saving precious foreign exchange.
The story of coal in India has been long and eventful. At one end, this ‘Black Diamond’ has powered the aspirations of a growing nation, lighting up four out of every five bulbs, yet on the other front, its demand has far outpaced the supply. In a way, India’s coal journey reflects both the rise of the economy and also the mismanagement of previous regimes.
When prime minister Narendra Modi took office in 2014, the challenge in the coal sector was steep. Coal blocks for captive use allotted by the earlier regime had been struck down by the Supreme Court on charges of illegality.
The Modi government’s response was a series of calibrated and sequential steps. To begin with, a transparent mechanism was set in place through a legislation, the Coal Mines (Special Provisions) Act, 2015, to return the blocks back to the industry via auctions. Similarly, in 2014, two-thirds of the major power plants had critical coal stocks of less than seven days. Today, India is the second-largest producer of coal with its record production at 729 million tonnes (MT) in FY20. The coal stock at thermal power plants in the country has risen to its highest-ever level—over 50 MT, sufficient for 30 days.
Nationalisation of coal in 1973 meant that domestic coal could be mined only by public sector companies. We are proud to have the world’s largest coal miner in Coal India Limited (CIL), which, by its tireless efforts, has registered an unprecedented 140 MT increase in production during the last six years. Needless to say, it will continue to play a major role in ensuring the energy security of the country. While state-owned coal companies did much to improve production, safety and prioritised employee welfare, the country’s coal demand continues to grow at a much faster rate. It is a stark reality that the CAGR of coal import from FY10 to FY14 was 23%. Only with the interventions cited here could this rate be reduced to 2% in Modi-I (FY15 to FY19). Even so, we imported 251 MT coal in FY20, worth Rs 1,58,865 crore, despite having the fifth largest reserves in the world.
Therefore, it is clear as daylight that the private sector has to be brought in to fulfil the needs of the nation. The policy of allowing private coal mining to captive users has been in existence for a long time. However, it has failed to enthuse the private sector. The Modi government has been working assiduously over the last six years to remedy this situation. Finally, the government has approved norms for open auction of mines to the private sector without any restrictions.
This is an epoch-making development for several reasons. For one, global coal mining firms, which were so far forbidden from mining coal in India, can now invest and introduce their best practices. Secondly, Indian industry can invest in a commodity business where domestic supply falls short of the demand, opening up an opportunity to substitute 135 MT coal imports.
The knock-on effect on sectors that use coal, like the steel, power and aluminium, is going to be significant. Over the years, the government’s grip on coal mining was loosened to the extent that private companies could mine coal for captive use. With the unlocking of the sector now, a coal-using company would be free to focus on its core business while procuring coal from professional miners. Mines will no longer be allotted on the basis of a ‘match’ with the needs of the single captive user. Rather, it will be auctioned out where the dictates of economic efficiency will prevail, and the consequent gains will be shared between the coal mining company and the coal buyer.
On the process side, the coal ministry has simplified the process of Mining Plan approval from 90 days to 30 days. Several unfriendly provisions have been removed or amended over the last five months. For instance, the law earlier excluded companies not having mining operations in India from participating in the auctions. This bar has been done away with, paving the way for local and foreign mining majors and non-mining ones, too, to participate in the domestic coal sector. Secondly, the government has introduced a more equitable system of sharing of revenues, moving away from fixed rates to an ad-valorem system. So when the prices go up, the miner shares more with the government, and if they soften, he shares less. This is equitable for both the parties.
The coal sector reforms are not just about investments and improving coal production. They have the innate potential to usher in immense job creation opportunities and give a strong boost to the government’s Make in India programme, since coal mining operations require large machines and manpower. Besides, it will lead to the induction of new technology and competition in the sector. Consequently, the economies of coal bearing states like Jharkhand, Chhattisgarh, MP, Maharashtra and Odisha will also prosper, since all the revenue from these auctions will exclusively accrue to them.
Reforms in the coal sector are an ongoing policy evolution. The recent move to untether the sector marks a paradigm shift in the way business in the coal sector will be conducted. While doing this, we have ensured the growth and prosperity of Coal India Ltd. They have been given a target of producing one billion tonnes of coal by FY24. For this necessary capital, coal blocks and an expeditious approval giving mechanism has already been put in place. We will also ensure that the welfare of coal miners in private mining is on a par with the status of workers in CIL.
Such bold moves have the potential to disrupt entrenched interests and could upset many. But, we have no doubt in our minds as we press ahead that, these reforms will increase self-reliance, remove operational efficiencies and usher in an era of greater prosperity.
The author is Union Minister of Coal, Mines & Parliamentary Affairs, Govt of India. Views are personal