Orderly development and regulation of coal industry will go a long way in making India shine

The commercial exploitation of coal has come full circle after its mining was nationalised beginning May 1, 1973. The Narendra Modi government’s decision to allow private companies commercial exploitation rights is a significant reform measure in the Indian energy sector that is starved of cost-effective quality coal. The decision will effectively end the monopoly of the state-run behemoth, Coal India (CIL) and its subsidiary companies that account for over 80 per cent domestic consumption of coal for both domestic and industrial purposes. The decision is billed as a way to allow multinational mining majors like Rio Tinto, BHP Billiton and Vedanta a stake in the monopoly market of state-run Coal India. It may also open up space for the Adanis, Glencore or for that matter any company having big exposure in the power market.

From the days of the East India Company, British era monopolies to Indian businessmen entering the business of coal mining prominent in eastern and central states, the black fuel industry in the country has undergone several twists and turns. Power and aluminium companies that use coal as basic fuel were allowed to commercially exploit and use it as fuel for end-use to date. Even this relaxation came in after the Narendra Modi government assumed power in 2014.

The second phase of opening up seems to be marked by removing the ‘end-use norms’ for private companies seeking to mine coal and sell the fuel to bulk and retail consumers. In 2015, through special provisions to the Coal Nationalisation Act of 1973, the government had brought in an enabling provision to open the door wider for both domestic and foreign companies participation in bidding for coal blocks. After having seen huge scam in the auctions of coal mines during UPA rule, the Modi government seems to have sequenced reforms in the coal sector carefully. The cancellation of allotment of 123 mines to companies by the Supreme Court also spurred the government to reform the moribund sector more cautiously.

High fuel costs, non-availability and expensive coal imports have singed the power sector. Especially after prohibitive duties slapped by Australia on coal mining for export purposes forced the government to make policy calls. As in the case of gas and oil blocks, state-run Coal India made several attempts to buy coal assets globally for meeting the burgeoning domestic demand. While Coal India made very modest progress on this front, exploiting domestic resources was an alternative effective policy call. Involving the domestic and foreign private companies in black fuel mining is an extension of this policy.

Enlisting a pool of coal blocks with all mining and environment clearances should be the first point to bring in foreign private companies to exploit the resources. These blocks with reserves of 40-50 million tonnes need to be offered if cost viability has to be achieved. Bringing in latest technology tools and transfer of know-how could be the only condition for allowing foreign companies into commercial coal mining sector. Exploring joint ventures between private power producers and global mining majors would be a good idea to meet domestic consumption needs. Besides, coal pricing could still be a sticky issue as the proposed regulator for the sector needs to be put in place.

Coal, like several other natural resources, belongs to the people. They have the first right on these resources. Hence, the Ashok Chawla committee recommendations on the judicious use of natural resources for ‘common good’.

Several rounds of e-auctioning coal mined by Coal India were done successfully, and extending this model to private companies should not be difficult. Price discovery by market forces should be the best way forward. But, vulnerable sections that depend on coal for both domestic use and micro-businesses must be provided a protective cover from the vagaries of prices volatility.

For the moment, Coal India should continue to play a significant role in the Indian economy and used for market intervention if required. Orderly development and regulation of coal industry will go a long way to support double-digit economic growth that India aspires to achieve.