Unveiling reforms in India’s coal sector
This will ignite investment, shore up production, create employment and move us towards self-reliance
India is stepping on the gas today to lay a strong foundation for energy security in the country, while providing large-scale employment and opportunities for investment in the coal sector. In line with Prime Minister (PM) Narendra Modi’s vision to build Aatmanirbhar Bharat (selfreliant India), India is marking a fundamental shift to unleash the coal sector as commercial mine auctioning kickstarts. We are re-orienting our approach from focusing on revenue maximisation to making maximum coal available in the market.
The story of coal in India has been long and eventful. At one end, this ”Black diamond” has powered the aspirations of a growing nation, yet on the other, demand has far outpaced supply. In a way, India’s coal journey reflects both the rise of the economy and also the mismanagement of previous regimes.
When the PM took office in 2014, the challenge in the coal sector was huge. Coal blocks for captive use allotted by the earlier regime had been struck down by the Supreme Court (SC) as illegal.
The Modi government’s response was a series of calibrated steps. To begin with, a transparent mechanism was set in place through a legislation, the Coal Mines (Special Provisions) Act, 2015, to return the blocks to industry, via auctions. Similarly, in 2014, two-thirds of the major power plants had critical coal stocks of less than seven days. Today, India is the second largest producer of coal with its record production at 729 million tonnes (MT) in 2019-20. Now, coal stocks at thermal power plants have risen to its highest-ever level, and is enough for 30 days.
The nationalisation of the coal sector in 1973 meant that domestic coal could be mined only by public sector companies. We have the world’s largest coal miner in Coal India Limited (CIL), which has registered an unprecedented increase in production of 140 MT in the last six years. It will continue to play a major role in ensuring energy security. While State-owned coal companies improved production, safety and prioritised employee welfare, the country’s coal demand continues to grow at a very faster rate. It is a stark reality that the CAGR of coal import from 2009-10 to 2013-14 was 23%. With these interventions, the rate was reduced to 2% in Modi-I (2014-15 to 2018-19). Even so, we imported 251 MT coal in 2019-20 worth ~1,58,865 crore, despite having the fifth largest reserves in the world.
Therefore, it is clear that the private sector has to be brought in to fulfil the needs of the nation. The policy of allowing private coal mining to captive users has been in existence for long. However, it has failed to enthuse the private sector. The Modi government has now approved norms for open auction of mines to the private sector without any restrictions.
This is an epoch-making development for several reasons. One, global coal mining firms, which were so far forbidden from mining coal in India, can now invest and introduce their best practices. Second, Indian industry can invest in a commodity business where domestic supply falls short of the demand, opening up an opportunity to substitute 135 MT coal imports.
The knock-on effect on sectors that use coal, such as steel, power and aluminium, will be significant. 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.
On the process side, the coal ministry has simplified the process of the mining plan approval process from 90 days to 30 days. Several bottlenecks have been removed or amended over the last five months. For instance, the law earlier excluded companies without mining operations in India from participating in the auctions. This bar has been done away with, paving the way for local and foreign mining majors and nonmining ones, too, to participate in the domestic coal sector.
Second, the government has introduced a more equitable system of sharing revenues, moving 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. This is equitable for both the parties.
The coal sector reforms are not just about investments and improving coal production. 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. 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.
Reforms in the coal sector are an ongoing policy evolution. The recent move to untether the sector marks a paradigm shift in the way business in the coal sector will be conducted. While doing this, we have ensured the growth and prosperity of CIL. It 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 government will also ensure that the welfare of coal miners in private mining is at par with the status of workers in CIL.
Such bold moves have the potential to disrupt entrenched interests and will upset many. But the government has no doubt as we press ahead, these reforms will increase self-reliance, remove operational efficiencies and usher in an era of greater prosperity.