Liberalisation of Coal Mining

• 13 Jan 2020

This article is based on Coal comfort, Mining deep: on Cabinet easing mining laws. It talks about the implications of Min­eral Laws (Amend­ment) Or­di­nance 2020 on Coal Mining Sector in India.

India is one of the largest coal producers in the world with an output of 729 million tonnes in 2018-19. However, despite sluggish economic growth, the import shipments have surged. This has led to further deterioration of the balance of trade.

In this context, the Union Cab­i­net ap­proved the pro­mul­ga­tion of the Min­eral Laws (Amend­ment) Or­di­nance 2020.

The ordinance per­mits com­mer­cial coal min­ing for lo­cal and global firms with­out im­pos­ing any end-user re­stric­tions, also it ex­tend­s the va­lid­ity of clear­ances for min­ing leases ex­pir­ing in 2020. This amendment could re­sult in a paradigm shift in the coal mining sector.

Importance of Coal Mining

• The min­ing in­dus­try serves as the base for the power sec­tor, with around 72% of In­dia’s cur­rent power be­ing gen­er­ated through coal.
• Fur­ther, coal forms the ba­sic build­ing blocks of man­u­fac­tured prod­ucts and many agri-in­puts. Thus, from a na­tional in­ter­est stand­point, the coal in­dus­try is key to en­sur­ing the coun­try’s en­ergy and raw ma­te­rial se­cu­rity.

Positive Impact of the Decision

The removal of these restrictions is in line with the objective of facilitating commercial coal mining in the country.

• The ordinance amends the existing provision that allowed only companies engaged in iron and steel, power, coal washing sectors and others to bid for coal mines.
  
  • Now all end-user restrictions have been removed, easing the entry of companies not engaged in any coal-use industry in coal mining.
  • End-user restrictions mean that even if the private player has mined the coal, there were many restrictions on final sale of that coal.
• Moreover, existing private owners will now be able to sell their surplus coal in the market.
  
  • Earlier, private players were restricted to use coal (mined by them) for their captive use in powerplants only.
• It will also encourage private players to participate in the auctions that are to be held to reallocate the captive coal blocks that were cancelled by the Supreme Court in 2014.
  
  • So far, only 29 of the 204 blocks that were cancelled have been auctioned.
• Open­ing up the sec­tor is also likely to spur in­ter­est in coal min­ing and, there­fore, boost in­vest­ment from In­dian and for­eign ma­jors.
  
  • The country may also benefit from the infusion of sophisticated mining technology, especially for underground mines, if multinationals decide to invest.
• Large investment in mining will create jobs and set off demand in critical sectors such as mining equipment and heavy commercial vehicles.
• The relaxation in regulations, along with previous initiatives such as allowing 100% foreign direct investment through the automatic route in commercial coal production, can aid in boosting coal production in the country and help reduce imports.

Other Government Interventions To Boost Mining

• Amend­ment to the Mines and Min­er­als (De­vel­op­ment and Reg­u­la­tion) Act (MMDRA) 1957, which ex­tends the va­lid­ity pe­riod of the en­vi­ron­ment and for­est clear­ances for two years for min­ing leases ex­pir­ing in 2020. The seam­less trans­fer of clear­ances will help min­imise any dis­rup­tion in op­er­a­tions.
• Na­tional Min­eral Pol­icy (NMP) was ap­proved in 2019, to ensure trans­parency in the al­lot­ment of min­ing blocks.
  
  • NMP 2019 em­pha­sises­ on themes such as sus­tain­able min­ing, boost­ing ex­plo­ration, en­cour­ag­ing the use of state-of-the-art tech­nol­ogy and skill de­vel­op­ment.
• In Septem­ber 2019, 100% FDI un­der the au­to­matic ap­proval route was allowed for the sale of coal and coal min­ing ac­tiv­i­ties in­clud­ing as­so­ci­ated pro­cess­ing in­fra­struc­ture.

Associated Challenges

There is no guarantee that these amendments would encourage large multinational miners to invest in the coal sector in India. This may be because:

• There is no clarity on pricing. Without a remunerative price, few would be willing to invest billions of dollars in the latest mining techniques.
• Further, miners have to currently pay huge amounts upfront to get a mine after winning an auction. Due to this, often there are no bidders for the auction.
• The other problem is that coal has a ‘dirty fuel’ tag and few global lenders are willing to put their money into the sector.

Way Forward

• Over the last few years, ex­plo­ration by pri­vate play­ers has come to a near stand­still. In­ter­ven­tions such as in­tro­duc­ing a seam­less tran­si­tion from ex­plo­ration to min­ing li­cence, per­mit­ting the sale of li­cence at any stage, and al­low­ing pri­vate com­pa­nies to proac­tively ap­proach government of India for ex­plo­ration ar­eas will help over­turn this trend.
• Stream­lin­ing the auc­tion process will also lead to greater ef­fi­ciency and more ef­fec­tive out­comes.
• Min­ing com­pa­nies in In­dia are sub­ject to much higher fi­nan­cial levies than other countries, ( due to high roy­alty rates, mul­ti­plic­ity of levies and dou­ble tax­a­tion). Therefore, roy­alty rates should be re­duced in line with in­ter­na­tional bench­marks.
• The government must en­sure that all pol­icy in­ter­ven­tions take cog­ni­sance of emerging global trends in min­ing, such as smart mines, deep-sea min­ing and the chang­ing com­po­si­tion of the min­ing work­force.

The min­ing sec­tor in In­dia is highly un­der­de­vel­oped rel­a­tive to its enor­mous po­ten­tial. It has the do­mes­tic ca­pac­ity to ab­sorb sig­nif­i­cantly higher min­eral pro­duc­tion. The government must ex­pe­di­tiously im­ple­ment a re­form agenda in the sec­tor to re­alise the industry's full po­ten­tial.

Drishti Mains Question

Liberalising coal min­ing in India could re­sult in a paradigm shift in the coal mining sector. Discuss.