India takes baby steps towards open coal sector

21st October 2014 By: Ajoy K Das - Creamer Media Correspondent

KOLKATA (miningweekly.com) - The Indian government has hinted at legislative changes designed to usher in the de-nationalisation of the country’s coal sector.

While no timeframe for the dramatic reform of the sector had been given, the government has indicated that de-nationalisation was the path it would walk. At the same time it announced the first of the legislative changes aimed at getting the coal industry back on the rails after the Supreme Court cancelled 214 coal blocks last month, on the grounds of illegal allotment procedures.

As reported by Mining Weekly Online earlier this week, the government on the same day announced that it had approved introducing an ordinance, with assent of the President, that would enable it to claw back ownership of the land above coal blocks that had been cancelled by the apex court.

The ordinance and having clear ownership of the land would be the first step towards putting all the cancelled coal blocks up for electronic auctions over the next three to four months, ahead of the six months stipulated by the courts for current allotees to hand the coal assets back to the government.

In the course of making the announcement on the first legislative initiative since the clampdown on arbitrary and illegal allocation of natural resource by the Supreme Court, the government also indicated that other legal changes were in the works that would ease end-use restrictions of coal mined from captive coal blocks by industries such as steel, power and cement.

Easing of end-use norms was being interpreted as government’s paving the way for private companies to enter standalone coal mining and the permitting of merchant sales by captive miners.

The Indian coal mining industry was nationalised in 1973 and coal mining since then had been kept as the sole domain of government-owned companies under the Coal Nationalisation Act 1973. Subsequently, amendments were made to the laws permitting captive coal mining but with stringent restrictions that coal mined would be exclusively used by companies for their own use in steel, cement and electricity production, while no merchant sales were permitted.

However, a section in the Coal Ministry cautioned against expecting a complete opening up of coal mining for private investors, saying that easing restrictions on end-use of captive coal mining could lead to de-nationalisation of the sector and the government’s intention had not yet been clearly enunciated.

For example, it could limit legislative changes to just making end-use norms more flexible, as at present, a power producer allocated a coal mine for a specific thermal power project could not transfer coal to another power plant at a different location. In the case of a coal-mine coming into production ahead of the power plant, companies were not permitted merchant sales and instead had to stockpile the coal produced. This might change.

Meanwhile, another section of the Ministry and analysts said that the government’s cautiousness was understandable since de-nationalisation of a sector would be a political decision expected to trigger considerable political and economic opposition.

Governments in the past had on several occasions initiated working papers on de-nationalisation to attract much needed private investment but had been forced to backtrack in the face of militant opposition from political parties, and trade unions in the coal sector, which wielded considerable influence across political parties, they said.