Unleashing coal power

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By Shivanand Pandit

To restructure the dynamics of the Indian coal sector the government has started auction of coal mines for mercantile sale of coal. The auction aims  to drive the coal sector towards market economy, self-reliance and greener future. As a part of the declarations made by the government under the Aatmanirbhar Bharat initiative, 41 coal blocks for commercial quarrying will be auctioned. Auctioning of minerals was also suggested by the Mineral Laws Amendment Ordinance, 2020.

Out of 41 coal mines, 11 coal mines are located in Madhya Pradesh, followed by nine each in Chhattisgarh, Odisha and Jharkhand and three in Maharashtra.  The size of the mines varies and 31 mines have coal reserves up to 500 million tons, four mines have reserves more than 500 to 1,000 million tons, three mines have reserves over 1,000 to 1,500 million tons and remaining three mines have reserves above 1,500 to 2,000 million tons. The aggregate peak rated capacity of all mines is 225 million tons per annum.

The current e-auction of coal mines saw aggressive bidding. Therefore, the government is of the opinion that the future of the private sector’s involvement in coal mining is encouraging. In all 42 business entities took part in the auction, of which 40 were private players. Few of the prominent companies that have grabbed blocks include Adani Enterprises, Vedanta, Hindalco Industries, JMS Mining, EMIL Mines and Minerals Resources and Jindal Steel and Power.   

Altogether 76 bids were received for 23 mines, wherein two or more bids have been received for 19 mines and were found entitled for opening procedural bids. As per the Ministry of Coals and Mines, all the blocks can produce total income of approximately Rs 7,000 crore per annum and generate above 69,000 job opportunities once they are operational.

For the first time, private industrialists have been permitted to mine coal for commercial mining objectives without any end-utilization limitations. Therefore, now mine coal can be sold without any restrictions and there is no condition that it should be expended only for the firms’ personal consumption. In the recent decision the government allowed private entities to take part in the tendering with a decreased upfront sum. It also allowed the adjustment of upfront amount against royalty, generous operating competence considerations and 100 percent FDI.

As per the new decision private players have to pay a portion of income from sale of coal to the government instead of fixed rupee per ton. Although initially auction of 41 coal mines was announced by the coal ministry but consequently cut down to 38. The date for furnishing technical offers by the eligible companies was September 29, 2020. The auction commenced on November 2, 2020 and ended on November 11, 2020.

While numerous resource rich nations like China, Indonesia and the US focused on the power sector in their post- COVID economic stimulus packages, India focused on opening up the mining sector, which is the beginning point of the industrial and manufacturing procedure. Coal block auctions invite applicants to excavate coal blocks by offers and they have to share the portion of amount of coal sales with the government. State governments endow leasing rights to the winning auction-goers to mine a coal block for a specific time period.

India has an extensive history of commercial mining for approximately 245 years. Of late, in the 20th century, the government noticed that growing energy or power needs of India were not attracting capital investments from private players. Also, few private coal miners were following irrational mining practices and providing inferior work settings for labour. Therefore, the government decided to nationalize private coal mines and it was done in two stages from 1971-1973 which gave birth to the Coal Mines (Nationalisation) Act 1973. The Act restricted coal mining activities largely to government units.

India is the world’s fourth biggest country in respect of availability of coal reserves. However, yearly import of coal is approximately 240 million tons amounting to Rs 1.7 lakh crore. Due to non-availability of superior coking coal which is a primary raw material for steel, almost the full need of coking coal is being imported by India. In the year 2017, the High Powered Expert Committee was founded to scrutinize the effectiveness and encounters in coal mining auctions.   

The committed suggested a steady shift from the distribution of coal blocks for personal consumption to distribution of blocks for commercial mining. According to the committee, the commercial mining would assist to exploit locally accessible reserves which will make the obtainability of coal at inexpensive price and dependency on imports can be reduced.

Where is the watchdog?

Although the government has found a friendly audience for the coal blocks there is one imperative element still absent- The absence of a proper watchdog for the coal sector. Without autonomous regulator no sector can succeed and private sector involvement minus independent controller is the formula for tragedy. Resource abstraction segment seriously need an independent controller compared to other sectors.

The mining industry has several environmental concerns. Therefore an independent authority is necessary to address all ecological consequences, to guarantee scientific mining to safeguard coal mines and frame regulations. Earlier when demand from China for iron ore was high majority of the participants violated rules because of nonexistence of a controlling mechanism. Also, the former Karnataka Lok Ayukta, Justice Santosh Hegde gave in a hard-hitting report about illegitimate mining. Hence, the government should keep the fundamental and sensitive coal sector away from irregular issues such as illegal export, transportation across state boundaries, extension outside sanctioned entitlements etc.

Way forward

Even though present auction for commercial coal mining got enthusiastic response, there have been reports of hostility by several states to the government’s decision to give out mines for development.

However, the commercial coal mining is likely to generate millions of direct and indirect job opportunities and capital investment. The government has to take many initiatives to address the troubles of the sector. The concerned ministry should not just focus on bringing competition to the coal mining segment and making more coal available. It has to focus on transparency strictures and developmental obligations. Coal might be a dirty fuel but efficient regulation, adoption of technological enhancements, robust plans and proper implementation of strategies can make it shining.

The writer is a tax specialist, financial adviser, guest faculty and public speaker based in Goa. He can be reached at [email protected]