coal-and-mining-sectors-fully-open-for-competition

Context: Addressing the launching of auction of 41 coal mines for commercial mining via video conference, the Prime Minister said a major step has been taken today to make India self-reliant in the energy sector.

More about the news:

  • The Prime Minister also said the government has set a target to gasify around 100 million tonnes of coal by 2030. 
  • India has opened up the coal sector completely for commercial mining for all local and global firms after easing restrictions on end-use and prior experience in auctions via an ordinance.

Background: 

India’s Coal Sector: The nationalisation of the coal sector in 1973 meant that domestic coal could be mined only by public sector companies. 

  • India has the world’s largest coal miner, Coal India Limited (CIL), which has registered an unprecedented increase in production of 140 MT in the last six years. 
  • Import dependency: India has the fourth largest coal reserve in the world, is the second largest producer in the world, but is also the second largest coal importer. 
  • Production: Today, India is the second largest producer of coal with its record production at 729 million tonnes (MT) in 2019-20.
  • Consumption: India ranks 2nd in the world for Coal consumption, accounting for about 84.8% of the world's total consumption of 1,139,471,430 tons. 
    • India's consumption of non-coking coal is expected to grow at a compound annual growth rate (CAGR) of 5.4 per cent to reach 1,076 million tonne (MT) in 2022-23 from 826 MT last financial year, driven by a 6.5 per cent growth in coal-based power generation.
  • Domestic coal prices were forecast to increase 10-12 per cent in 2018-19 led by hike in prices of non-coking coal for both power and non-power sectors by CIL.

Govt. initiatives for coals sector reforms:

  • A transparent mechanism was set in place through a legislation, the Coal Mines (Special Provisions) Act, 2015, to return the cancelled  blocks to industry, via auctions. 
  • Similarly, in 2014, two-thirds of the major power plants had critical coal stocks of less than seven days. Now, coal stocks at thermal power plants have risen to its highest-ever level, and is enough for 30 days.
  • On the process side, the coal ministry has simplified the process of the mining plan approval process from 90 days to 30 days.
  • A more equitable system of sharing revenues, which moved 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 decrease, he shares less. 
  • CIL has been given a target of producing one billion tonnes of coal by FY 2023-24. For this necessary capital, coal blocks and an expeditious approval giving mechanism have already been put in place.
  • The Mineral Laws (Amendment) Ordinance, 2020 allows any India-registered company to bid and develop coal blocks. 

Salient features of the ordinance

  • The Ordinance amends the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and the Coal Mines (Special Provisions) Act, 2015 (CMSP Act).  
  • The CMSP Act provides for the auction and allocation of mines whose allocation was cancelled by the Supreme Court in 2014 as illegal.
    • Schedule I of the Act provides a list of all such mines; 
    • Schedule II and III are sub-classes of the mines listed in the Schedule I.  
    • Schedule II mines are those where production had already started then, and Schedule III mines are ones that had been earmarked for a specified end-use.
  • Removal of restriction on end-use of coal: Earlier, companies acquiring Schedule II and Schedule III coal mines through auctions can use the coal produced only for specified end-uses such as power generation and steel production.  
    • Now, companies will be allowed to carry on coal mining operation for own consumption, sale or for any other purposes, as may be specified by the central government.  
  • Eligibility for auction of coal and lignite blocks: The Ordinance clarifies that the companies need not possess any prior coal mining experience in India in order to participate in the auction of coal and lignite blocks. 
  • Composite license for prospecting and mining: Earlier, separate licenses were provided for prospecting and mining of coal and lignite, called prospecting license, and mining lease, respectively.  Prospecting includes exploring, locating, or finding mineral deposit.  
    • The Ordinance adds a new type of license, called prospecting license-cum-mining lease.  This will be a composite license providing for both prospecting and mining activities.
  • Non-exclusive reconnaissance permit holders to get other licenses: Earlier, the holders of non-exclusive reconnaissance permit for exploration of certain specified minerals are not entitled to obtain a prospecting license or mining lease.  
    • The Ordinance provides that the holders of such permits may apply for a prospecting license-cum-mining lease or mining lease.  
  • Transfer of statutory clearances to new bidders: Earlier, mining leases for specified minerals (minerals other than coal, lignite, and atomic minerals) can be transferred to new persons through auction upon expiry.  
    • The Ordinance provides that the various approvals, licenses, and clearances given to the previous lessee will be extended to the successful bidder for a period of two years.  
  • Reallocation after termination of the allocations: The CMSP Act provides for termination of allotment orders of coal mines in certain cases.  
    • The Ordinance adds that such mines may be reallocated through auction or allotment as may be determined by the central government.  The central government will appoint a designated custodian to manage these mines until they are reallocated.
  • Prior approval from the central government: Under the MMDR Act, state governments require prior approval of the central government for granting reconnaissance permit, prospecting license, or mining lease for coal and lignite.  
    • The Ordinance provides that prior approval of the central government will not be required in granting these licenses for coal and lignite, in certain cases.  These include cases where: (i) the allocation has been done by the central government, and (ii) the mining block has been reserved by the central or state governments to conserve a mineral.
  • Advance action for auction: Under the MMDR Act, mining leases for specified minerals (minerals other than coal, lignite, and atomic minerals) are auctioned on the expiry of the lease period.  
    • The Ordinance provides that state governments can take advance action for auction of a mining lease before its expiry.

Benefits of coal sector reforms:

  • Augment production capacity: Coal India has been tasked to produce one billion tonnes by 2023-24 but production will still fall short of demand and there is a need to introduce private players in coal mining.
  • Attracting FDI: The government expects to attract investments from Indian and global corporates, besides mining majors such as Peabody, BHP Billiton and Rio Tinto.
  • It has the innate potential to usher in immense job opportunities and provide a boost to the government’s Make in India programme, since coal mining operations require large machines and manpower. 
  • Local development: 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, Madhya Pradesh, Maharashtra and Odisha will also grow since all the revenue from these auctions will accrue exclusively to them.
  • With the unlocking of the sector now, companies using coal will be free to focus on their 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 based on economic efficiency.

Concerns

  • Environmental hazard: The list of 41 mines showed several are located in biodiversity-rich forest areas in central India, including a few in one of the largest contiguous stretches of dense forest called Hasdeo Arand that spans 170,000 hectares.
  • Tribal regions: Coal and iron ore are found in districts that have significant forest cover and host a large population of scheduled tribe and backward community.
  • With no end use and pricing restrictions, the government is also giving up its important responsibility of safeguarding public interest, protecting the environment and upholding the prevailing constitutional safeguards for the areas in question.

India will have rise to energy challenge and increasingly get into clean coal technology. CIL will invest thousands of crores of rupees on mechanizing coal movement to mine coal technologically and more efficiently, reducing pollution and improving efficiency.

Image Source: Economic Times