Coal mining and coal-fired thermal power generation together contribute about 10 per cent to India’s Index of Industrial Production (IIP). Indira Gandhi nationalised the coal industry, creating Coal India Limited (CIL) in 1975. Domestic demand-supply gap by 2012 widened to 18-20 per cent of overall coal demand. And then came the Comptroller and Auditor General of India (CAG) report followed by the Supreme Court verdict in 2014 that overturned the allocation of almost all coal mines allotted after 1993.
In March 2015, the Narendra Modi- led government enacted the Coal Mines (Special Provisions) Act, containing provisions enabling the government to allocate coal mines through auctions. Over 70 coal mines were auctioned. In February 2018, the Cabinet Committee on Economic Affairs (CCEA) permitted private firms to enter the commercial coal mining industry, with mines to be auctioned to the firm offering the highest per tonne price.
Historically, due to higher tariffs and logistics costs, the cost of coal for end users went up significantly. On landed basis, taxes, duties and levies have accounted for up to 25 per cent and freight up to 34 per cent of overall coal cost, making the likes of CIL non-competitive, necessitating the urgency of reforms.
India has a stated objective of achieving 40 per cent of installed capacity from renewables by 2030. Coal power generation accounts for 38-40 per cent of the additional power generation worldwide and about 27 per cent of the global energy mix. Clearly, coal as a source of power is unlikely to become redundant any time soon and relying only on CIL, which accounts for 83 per cent of India’s coal production and 76 per cent of thermal power capacity, makes little sense.
Cognisant of the situation, the government recently approved the promulgation of Mineral Laws (Amendment) Ordinance, 2020, that will amend the Mines and Minerals (Development and Regulation) Act 1957 and Coal Mines (Special Provisions) Act of 2015. The reformist ordinance opens up the coal sector to private players so that they can mine coal for commercial purposes and not merely for captive use.
India’s coal ministry has identified as many as 40 coal blocks with an estimated production capacity of 150 million tonnes (mt) per year for its maiden commercial coal mining auction to be held before March 2020. After the Supreme Court cancelled over 200 coal blocks in 2014, only 29 were auctioned due to end user restrictions. The change in rules will now however, pave the way for a company that wins a block via auction, to use coal mines for any of its subsidiaries or holding companies.
India produced about 607 million metric tonnes of coal in 2018-19 and imported another 235 mt. It is estimated that of the 235 mt, 135 mt valued at Rs 1. 7 trillion could have been easily met from domestic reserves, had the coal sector been opened up to the private sector.
The government needs to be applauded for taking the tough but practical step of democratising the coal sector and ending the monopoly of CIL. Allowing 100 per cent FDI in coal mining will also help India to harness its coal reserves, which were earlier available only for captive use of steel and power, more efficiently. Privatisation should help attract global players like BHP, Glencore,Rio Tinto and Anglo American. India is also taking steps to free up more coal deposits and broaden its auction pool.
Currently, CIL supplies a majority of its produce to the power sector, with NTPC, India’ s largest power generator, being its key customer. With NTPC’s announcement last year about forming a subsidiary to undertake coal mining business to compete with merchant miners, the government has shown its resolve in encouraging competition between various state utilities. CIL has seven producing subsidiaries namely, Eastern Coalfields, Bharat Coking Coal, Central Coalfields, Western Coalfields, South Eastern Coalfields,Northern Coalfields and Mahanadi Coalfields. The mine planning and consultancy company of Coal India is the Central Mine Planning and Design Institute Limited. In addition, CIL has a foreign subsidiary in Mozambique, namely Coal India Africana Limitada. The mines in Assam i.e. North Eastern Coalfields, are managed directly by CIL.
Since privatising the coal sector and ending CIL’s monopoly is now almost done and dusted, the next step should be spinning of CIL into smaller units and thereafter listing them on stock exchanges. Also, listing some of the larger subsidiaries and allowing them to run independently, free of parental control, should help unlock shareholder value and give the government greater leeway in raising funds to meet its annual disinvestment target of about $15 billion.
The proposal to form a national coal index for pricing transparency and single window clearance for coal mining projects for speedy execution should aid the process of privatisation. Importantly, coal sector reforms are a huge boon for CIL, one of the largest producers of coal globally, as it will unshackle CIL from the burden of supplying coal to end consumers at deep discounts to international prices. The privatisation of coal sector by regularising production, removing end use restrictions and allowing foreign capital in commercial coal mining are in sync with the larger ethos of “Minimum Government, Maximum Governance”.
Though India accounts for around 18 per cent of the world population, it uses only around 6 per cent of the world’s primary energy. India’s per capita energy consumption (PEC) equals 0.6 tonnes of oil equivalent (toe) as compared to the global per capita average of 1.8 toe. The Modi government’s landmark coal reforms should, however, significantly raise India’s PEC, which in turn, should accelerate the process of reaching the $5 trillion GDP number by 2024.
The writer is a spokesperson for the BJP