KOLKATA (miningweekly.com) – Several government departments have raised red flags over the Coal Ministry’s proposal to liberalise captive coal mining in the country.
The departments contend, in internal discussions, that the regulatory framework is not in place to support the Coal Ministry’s plans to permit captive coal miners free merchant sale of production from their respective coal blocks.
As reported by Mining Weekly Online, the Coal Ministry has prepared a working note that will allow a captive miner free merchant sale of coal for up to 25% of production above its own requirement, at a price to be determined by the miner.
The proposal was drawn up against the backdrop of the fact that opening up commercial coal mining to private miners, and the auctioning of blocks specifically for such investors, has been put on the backburner owing to political considerations and that enabling captive miners free sale of part of their production would bring higher volumes of dry fuel for coal starved user industries.
The mooted question flagged by government departments is why captive miners would produce coal in excess of their own consumption? It could be assumed, the departments argue, that it will be to maximise realisations through free sale of such production.
In such a case, it will give rise to multiple pricing in a market which does not have any price discovery mechanism, and in the absence of any independent sector regulator, multiple pricing will distort the market with the risk of cartels forming, the departments have observed in their internal objections.
If on the other hand, free sale from captive mines is to be benchmarked to State-run Coal India Limited (CIL), private captive coal miners will have little incentive to increase production beyond own requirements, defeating the objective of the Coal Ministry to increase supplies of dry fuel to user industries.
It has also been pointed out that a regulatory framework audit did not exist and that there will be issues with revenue sharing with government in cases where multiple prices were determined for coal from a single captive block, as the government’s share of revenue is determined at a fixed-rate submitted during the auction of the block to private miners.
A bone of contention between the government and the Coal Ministry is the need for a coal sector regulator if free pricing is permitted in the case of sale of excess production from a captive coal block. While a section of the government claimed a regulator was a precondition to free pricing, the Coal Ministry has laid down that no other industrial sector, be it steel, cement, aluminium or iron-ore, where miners are free to determine price, had sector regulators to oversee pricing regimes.