Commercialization of coal mining

Source- Live Mint

Syllabus- GS 3- Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Context– Centre was all set to allow commercial and even foreign players to mine coal from 19th October, with the aim of making India among the biggest exporters of the dry fuel, but announced yet another delay in the process.

Government in March allowed commercial mining operations i.e. mined coal can be sold anywhere and to anyone in the world. It also allowed 100% FDI. But still, the process of bidding has not completed yet.

What provisions does coal Ordinance contain?

1. It allows Coal mining by any Company.

• Earlier: Only those in Power, Iron & Steel and Coal washery Business could bid for Mines.

2. It also does away with captive end-use criteria i.e. Coal can be commercially mined and sold to any buyer in an open market.

• Earlier: The Coal mined by a licensee could be used for only specified purpose like for its own Thermal power plant i.e. they could not be sold in Open market like that of Coal India Ltd (Public Sector Enterprise).

What are the advantages accruing from this changed regulatory regime?

1. Expands the pool of Potential bidders-This will lead to better competition during auctions thus fetching better revenues for the government.

• Foreign Direct Investment– The move will promote FDI in the sector.

2. Fixed royalty- Previously, the floor price was a fixed royalty of ₹150 per tonne, and bidders contested by bidding upwards of this. This time around, the floor price is fixed at 4% of the annual revenue realized from the coal mine.

• This change from fixed royalty to variable royalty gives miners protection from fluctuations in prices.

3. Import Substitution– The move will boost both production and mining efficiency besides substituting import of coal worth Rs 30,000 crore.

What are the challenges?

1. Underwhelming response– No bids have been received for 15 of the 38 coal blocks that are up for auction, continuing the trend of tepid participation.

• None of the big foreign miners like BHP, Glencore and Peabody are participating, and domestic companies dominate the list of bidders.

2. Lower royalty revenue– Muted demand for coal due to an economic slump means that auction prices may be depressed. States are already complaining about a possible drop in royalty revenue.
3. Federal Challenges– In a writ petition to the SC, Jharkhand has said the Centre’s decision to commence commercial mining process flouts Schedule-V of the Indian Constitution, which refers to the ‘scheduled areas’ falling under the state government.

• The suit argued that depressed demand for coal due to the ongoing economic slowdown would lead to lower prices accruing to the state.

4. Monopoly- The Adani Group, which includes its four subsidiaries, accounts for nearly one-sixth of all bids submitted and has bid for 11 of the 23 mines up for auction, if all Adani Group companies secure their respective blocks, a significant number of new mines will be under the ambit of one conglomerate.
5. Climatic Concerns– When countries across the world are moving away from fossil fuel resources this step to enhance Coal production is criticized by environmentalists.
6. Health Concerns– Coal burning releases Carbon dioxide, particulate matter, sulphur dioxide, nitrogen oxide and mercury- thus damaging the health of many people around the region.
7. Environmental Challenges– One of the proposed auctions of a mine site is near Maharashtra’s Tadoba- Andhari Tiger Reserve. The State government has raised concerns that mining at the site can lead to destruction of wildlife corridors.

Way forward-

• Government needs to balance its commitments towards Climate Change and its imperative to push the developmental agenda. Promotion of Clean Coal Technology which is at present Cost prohibitive is the way to move ahead.
• As the new auctions usher in a new regime in India’s complex history of coal mining, the full implications on both production and revenues realized will be keenly watched.