By Arvind Sharma
We have come a long way as far as the policy framework concerning coal mining is concerned. From a concession model, we have moved on to granting coal mining blocks pursuant to a competitive bidding process, and from prescribing specific end-use to permitting commercial sale of coal. This evolution is with a view to: ensure transparency in allocation of natural resources; cater to the country’s ever-increasing coal demand; utilise natural resources at an optimal level; and generate revenues for the government so that the same can be used for infrastructure and overall development.
Needless to mention, the Supreme Court’s judgments in various matters concerning allocation of India’s scarce natural resources have also had a huge bearing on the policy framework concerning auction of coal and mineral blocks.
With India having one of the largest coal reserves in the world, it is concerning that coal supply in the country is inadequate, and the country has to rely extensively on coal imports. The government’s decision to open the coal sector to permit companies, domestic and foreign, to mine coal in India without any end-use restrictions is a welcome move, and this will help meet demand and reduce the country’s foreign exchange expenditure on a natural resource abundant in India.
The government intends to keep the eligibility criteria for participating in the commercial coal block auctions to a minimum and move from a per unit levy/charge model to a more dynamic market-driven revenue share model. The government is expecting a good response to its proposal to auction 41 coal blocks in the first tranche, and it has indicated that it will further enhance on ease of doing business.
Commercial coal block auctions are intended to be conducted in a two-stage bidding process, which will involve technical screening and submission of competitive initial price offer in the first stage, and a second and final stage where better price offers are intended to be received. This will ensure greater competition, and will assist various coal bearing states to earn higher revenues and invest in the much-needed development and growth, emerging from the Covid-19 crisis.
Earlier, Coal India Ltd, its subsidiaries, and Singareni Collieries Company Ltd were the only entities permitted to sell coal on a commercial basis. The proposal to permit commercial coal mining will invite new and private players in the commercial coal-mining sector, and this will lead to many benefits resulting from competition. The intended liberalisation will go a long way in addressing India’s current needs to generate employment, increase investment in research and development, attract foreign direct investment, and ensure inclusive growth.
The opening up of the coal sector will also help in fulfilling the government’s Atmanirbhar Bharat Abhiyaan, and will help several economic sectors, especially power, steel, aluminium and unregulated sectors. With the quantum of coal resources available in the country, it is also noted that the subject reforms will open up export opportunities in the coal sector and will result in foreign exchange earnings.
Further, with the removal of end-use restrictions, the coal mined can be used for various purposes including coal gasification and liquefaction. The government has highlighted that as coal in India has low sulphur content, it is cleaner than other types of coal.
The government has indicated that it will provide lucrative rebates to successful bidders, and the same will assist in reducing their overall production costs and help maintain competitive pricing. This, in addition to the opportunity to harness coal bed methane, will increase value of the coal blocks.
The government has unleashed reforms that promise tremendous growth for the economy and all efforts should be taken to ensure that this initiative is not compromised because of regulatory and licensing hurdles.
The author is partner, M&A and General Corporate, Shardul Amarchand Mangaldas & Co