The government plans to put up coal mines for bidding by private steel, power and cement companies and introduce changes in the law to enable commercial mining in the future, signalling its intent to fully open the sector to private players.
The new auction-based system will replace the earlier controversial policy of allotting coal blocks based on recommendations of a panel of bureaucrats, which the Supreme Court had struck down last month as arbitrary. The Court had cancelled 214 blocks allotted since 1993, a move that threatened a nascent economic recovery.
The measures, announced on Monday by finance minister Arun Jaitley and coal and power minister Piyush Goyal, follow close on the heels of labour and fuel sector reforms and are likely to go down well with markets.
“The Cabinet has recommended promulgation of an Ordinance to the President in order to resolve the pending issues particularly the situation arising out of the Supreme Court judgement quashing the allocation of the coal blocks,” Jaitley told a press conference after a cabinet meeting that approved the decision.
Currently only steel, power and cement companies are allowed to own mines for their own use. But in the future there could be commercial use of mines, a move that would enable private companies to get into trading coal and break the monopoly of public sector monolith Coal India.
“There will be an enabling provision for the future where under rules which are framed for commercial users of mines could also be decided by the Central government. This would lead to an optimal utilisation of the natural resource,” Goyal said. He added that power prices could fall as a result.
Jaitley vehemently denied a suggestion whether the process could be termed as “de-nationalisation” of the coal sector saying, “The original Nationalisation Act remains and will remain and Coal India Ltd will be fully protected.”
The government will allot mines directly to state-owned companies like NTPC and state electricity boards, and only companies incorporated in India will be allowed to participate in bids.
“The actual users of coal in the cement, steel and power sectors who apply for a certain number of coal mines will be put in the pool and there would be an e-auction. A sufficient and adequate number of mines would be put so that actual users go back with the mines,” Jaitley said.
“The entire mess that the UPA had left behind from 2005 onwards over the next four months would be cleaned up,” he said, adding coal worth $20 billion (about Rs 1.26 lakh crore) which was being imported annually would be domestically substituted through this measure.
Coal-rich states Jharkhand, Odisha, West Bengal and Chhattisgarh, Madhya Pradesh, Maharashtra and Andhra Pradesh would make big fiscal gains from the auctions, a fact that could endear the ruling BJP to the electorate in any of those states going to assembly polls in the next few years.
India’s estimated coal reserves now stand at 301 billion tonnes, the fifth highest in the world, but companies still have to import as large number of mines remain unused.
More than half of India’s power is produced from coal. State-owned Coal India, accounts for nearly 80% of the country’s coal output, but it isn’t enough to meet India’s rising energy demand.
India’s coal imports jumped more than three times in the last eight years—from 41.2 million tonnes in 2005-06 to 140.6 million tonnes in 2012-13.
The previous UPA government had come a under relentless attack after India’s national auditor Comptroller and Auditor General (CAG) in a report in 2012 suggested that the arbitrary allocation of coalfields may have robbed the exchequer of potential revenues of Rs. 1.86 lakh crore between 2004 and 2011.
“We sincerely hope that benefits of the auction of coal blocks will go to actual users and percolate down to the consumers. At the same time, we also caution the government to weave in necessary parameters and safeguards to ensure these benefits reach the ultimate consumers,” Congress spokesperson Randeep Singh Surjewala said.