Now to deliver on FDI in commercial coal-mining

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Updated: August 30, 2019 5:44:31 AM

Indian firms could commercially mine coal years ago, but no mines allocated to them; vital to see this isn’t repeated.

If local firms have not been able to commercially mine coal despite being allowed to, it is not going to be easy for foreigners to be able to do so (Reuters)If local firms have not been able to commercially mine coal despite being allowed to, it is not going to be easy for foreigners to be able to do so (Reuters/File Photo)

Given how, in 2000 itself, the NDA had brought in a Bill to amend the coal nationalization bill to allow commercial mining, it was always a surprise that, even when the NDA was in power for the second time in 2014, it didn’t push for this. Indeed, even after the BJP announced a new policy on mines – after the Supreme Court cancelling coal mining licenses forced it to come out with a new plan – it changed the law to allow for this, but it never took the necessary steps to ensure commercial mining of coal; while it auctioned several coal blocks, none of this was for commercial mining. Indeed, last year, The Indian Express reported on a note prepared by the coal ministry which said that since the unions of Coal India and its subsidiaries were against commercial mining, this “does not make it conducive at present for the auction of coal mines for the sale of coal”. In which case, while the government decision to allow 100% FDI in commercial mining – under the automatic route – has to be welcomed, it has to be seen as to whether the government is able to implement it; after all, if local firms have not been able to commercially mine coal despite being allowed to, it is not going to be easy for foreigners to be able to do so.

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Allowing commercial mining of coal is critical since, with India importing over $26bn of coal, it is critical to find ways to boost coal output; indeed, since imported coal costs a lot more, many users like power plants don’t even import coal as this prices them out of the market. The sharp increase in Australia’s reserves as compared to India’s is the best example of why India needs to get global firms of repute to explore for minerals – mineral imports comprise 55% of India’s overall import bill and it is still a high 25% even when oil is excluded. Interestingly, while PSUs have been given some of India’s best reserves, as a general rule, private firms have been a lot more successful, whether you compare Cairn with ONGC, Tisco or JSW with SAIL, NMDC with Sesa Goa etc. A Niti Aayog strategy paper had pointed out that while India’s prospective geology is very similar to that of Western Australia, only 10% has been explored as compared to 95% for Australia, and an even smaller 1.5% is being mined right now; according to Niti, even doubling the area being explored could create an additional 5 million jobs by 2022-23.

Apart from ensuring that enough mines – and of reasonable sizes – are put on auction for commercial mining, the government needs to reduce India’s levies; as compared 7-15% in Australia and 0.5-4% in China, India’s royalty rates are 30-35% (the value of the cess varies according to the quality of coal) and corporate tax rates are also much higher. There is then the issue of forest and environmental clearances. Australian mining giant Rio Tinto found a lot more diamond-bearing formations in just a few years than PSUs had over decades, but it had to finally leave when the area it found this in, in Madhya Pradesh, was part of a tiger reserve. And Vedanta’s sad history in Niyamgiri is well documented. So while the government did well to allow 100% FDI in commercial coal mining, as part of its measures to stimulate investment, delivering on this is going to be far tougher than the announcement.

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