Context:

The Union cabinet approved opening up of coal mining and further disinvestments.

The Centre’s decision to liberalise norms for entry into coal mining and relax regulations on mining and selling coal in the country is significant in many respects.

Apart from deciding that the Centre will shoulder 60% of the expense for the North East Gas Grid project.

It also extended the validity period of mining lease clearances ending in 2020 by two years.

Coal sector in India:

Despite having the world’s fourth largest coal reserves, India imported 235 million tonnes (mt) of coal last year, of which 135mt valued at Rs.171,000 crore could have been met from domestic reserves.

India’s state-run coal giant has been unable to meet growing demand despite abundant resources.

The South Asian nation depends on Coal India for more than 80 per cent of its domestic production and the miner has consistently fallen short of production targets in the last few years.

The government has been progressively liberalizing the coal sector over the last several months to attract new investments, and getting rid of this archaic end-use restriction was a key step.

Procedure established till now in Coal Mining:

• Until now there were restrictions on who could bid for coal mines only those in power, iron and steel and coal washery business could bid for mines and the bidders needed prior experience of mining in India.
• This effectively limited the potential bidders to a select circle of players and thus limited the value that the government could extract from the bidding.
• Second, end-use restrictions inhibited the development of a domestic market for coal.
• The ordinance essentially democratises the coal industry and makes it attractive for merchant mining companies, including multinationals such as BHP and Rio Tinto, to look at India.
• The move was overdue considering that the country spent a huge Rs.1,71,000 crore in coal imports last year to buy 235 million tonnes; of that, 100 million tonnes was not substitutable, as the grade was not available in India.
• But the balance 135 million tonnes could have been substituted by domestic production had it been available.

100% Foreign Direct Investment under automatic route is allowed:

• This will open up the coal mining sector completely, enabling anyone with finances and expertise to bid for blocks and sell the coal freely to any buyer of their choice.
• It is expected that the government will also address other procedural issues that add to time delays and upfront cost of developing a mine.
• Under the ordinance, allocation of coal/lignite blocks for composite prospecting licence cum mining lease has been provided;
• Requirement of previous approval in cases where allocation of blocks was made by Central Govt has been dispensed with.
• This will speed up the process of implementation of projects, ease of doing business, simplification of procedure and benefit all the parties in areas where minerals are located.

Challenges that need to be addressed:

The company’s last year production was 606 million tonnes.

The target is one billion tonnes production by 2023-24. Coal India Limited is a Maharatna PSU and tremendous public resources have been invested in the company over the years.

Quality of coal needs to be improved through washing to reduce the environmental impact, enhance coal quality and increase process efficiency.

Transportation facilities and infrastructure such as road and rail networks must be improved.

There should be enhanced connectivity across mineral zones and infrastructure projects driven by PPP model.

Doubling of rail routes near coal bearing areas where movement is higher is a must; enhanced port capacities are also imperative.

Logistics need to be effectively and actively managed and eco-friendly technologies must be adopted across the coal value chain.

The Government must also rethink the high royalties it charges on coal mining, if the latest move is to bear fruit.

Road Ahead:

It is the Government’s responsibility to ensure that Coal India Limited is not compromised the way BSNL has been by the opening up to the private players.

The company employs about three lakh people and is a listed company and hence a national asset.  It has to be nurtured even as private players are welcomed.

Just 10% of India’s prospective geography compared to Australia’s 95% have been explored and mining happens in a much smaller 1.5%.

The Government needs to reduce time taken for approval of mining leases and also easing the procedures for clearances. NITI Aayog has suggested a 180-day limit.

Conclusion:

Amendments to two legacy Acts through the Mineral Laws (Amendment) Ordinance 2020 cleared by the Cabinet will free the sector from restrictions that were inhibiting its development.

The move will also help India gain access to sophisticated technology for underground mining used by global miners.

Continuity of all Forest and Environment clearances for Iron-Ore mines for a period of 2 years is another great reform.

This was a long-pending reform which will make the Indian Steel industry more aggressive and competitive on a global level.

India’s move comes at a time when the window for fossil fuels is rapidly closing, and the global energy landscape evolving, with fundamental changes to the investment culture amid growing climate concerns.