Removing the blocks one at a time
After a series of measures in the diesel and natural gas sectors, the government has taken a leap forward to remove the bottlenecks that had come to characterise the coal sector as part of a broad strategy to push growth and make India a global investment hotspot.
The government plans to allow private steel, power and cement companies to bid for coal mines by amending existing laws, enabling commercial mining in the future and signalling its intent to fully open the sector to private players.
This follows last month’s Supreme Court ruling that declared the allotment of coal mines based on the recommendations of a bureaucrats’ panel since 1993 illegal.
The Coal Mines (Special Provisions) Ordinance 2014, which the President signed last week, virtually lifts controls in the controversy-marred sector.
The new auction-based system of the de-allocated blocks will replace the earlier controversial policy of allotting coal blocks based on the recommendations of a panel of bureaucrats.
The ordinance is likely to prevent a significant amount of bank loans from turning into non-performing assets. Besides, it could eventually pave the way for foreign companies with units or joint ventures in India to get into commercial coal mining.
In the short run, the transition may be painful. Consumers could end up paying more for electricity as companies could charge more to cover the high cost of coal that they will have to buy through auction.
But, it is not a heavy price to pay for the cause of removing administrative arbitrariness and making India a rule-based business destination.
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 the country’s power is produced from coal. State-owned Coal India Limited, accounts for nearly 80% of the country’s coal output, but it isn’t enough to meet the 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.
Long outages because of coal shortages in power stations have become emblematic of India’s crushing power shortage amid the sweltering heat every summer.
It hurts operations in tens of corporate towers in Mumbai and also large and small factories across the country. The latest move, one hopes, should help put an end to these problems.
This time, there really appears to be some light at the end of the tunnel.