- Despite India being world’s second largest coal producer and being the 5th largest country in terms of coal deposits, with coal reserves which may last at least 100 years more, the country is unable to produce adequate quantities of coal to meet the requirement of domestic industry and development.
- To harness these critical resources, in 2020, the Government of India opened the coal sector for commercial mining by private players more than 45 years after the nationalization of coal mines in the country.
What is commercial mining?
- Commercial mining allows the private sector to mine coal commercially on a revenue-sharing model without placing any end-use restrictions.
- Removing end-use restrictions marked the end of the captive mining regime.
- Captive mining is the coal mined for a specific end-use by the mine owner, but not for open sale in the market.
- A revenue sharing mechanism instead of the earlier fixed price per tonne will introduce competition, transparency and private sector participation in the market.
- The private firms now have the option of either gasification of the coal or exporting it. They can also use it in their own end-use plants or sell them in the markets.
- Further, with 100 per cent foreign direct investment allowed in the coal sector, global companies can also participate in the auctions.
- The complete freedom to decide on sale, pricing, and captive utilisation aims to attract many private sector firms to participate in the auction process.
- The government expects these steps will generate employment and reduce India’s import bill.
Was the private sector never allowed in mining?
- Private sector participation was permitted until the early 1970s. The Indira Gandhi government announced the nationalisation of the coal blocks in two phases between 1971 and 1973.
- The reforms announced in 2020 effectively ended state-owned Coal India Ltd (CIL)’s monopoly over mining and selling of coal.
Was this the first attempt by govt to open up the sector?
- The Central Government promulgated the Coal Mines (Special Provision) Act, 2015 to permit auction of coal mines for mining by private entities.
- While the auction-based regime allowed private sector participation, it was limited to captive usage in own end use plants. They were not allowed to trade into the market, making it unattractive for the private sector.
- Further in 2018, private sector firms were allowed to sell upto 25 per cent of the output in the market, but this also saw a lukewarm response from the private sector.
Why in News?
- The Ministry of Coal has launched the seventh round of commercial coal mine auctions.