Revealing reforms in India’s coal sector: analysis
India is stepping on the accelerator today to lay a solid foundation for energy security in the country, while providing large-scale employment and opportunities to invest in the coal sector. In line with Prime Minister Narendra Modi’s vision of building Aatmanirbhar Bharat (Self-Sufficient India), India is marking a fundamental shift to unleash the coal sector as commercial mine auctions begin. We are reorienting our approach to focus on maximizing revenue to make coal available on the market.
The history of coal in India has been long and hectic. At one extreme, this “black diamond” has fueled the aspirations of a growing nation, but on the other hand, demand has far outstripped supply. In a way, India’s coal journey reflects both the boom in the economy and the mismanagement of previous regimes.
When the Prime Minister took office in 2014, the challenge in the coal sector was enormous. The blocks of coal for captive use assigned by the previous regime had been eliminated by the Supreme Court (SC) as illegal.
The Modi’s government response was a series of calibrated steps. To start, a transparent mechanism was established through legislation, the Coal Mining Law (Special Provisions), 2015, to return the blocks to the industry, through auctions. Similarly, in 2014, two-thirds of major power plants had critical coal reserves of less than seven days. Today, India is the second largest coal producer with a record production of 729 million tons (MT) in 2019-20. Now, coal stocks at the thermal plants have increased to their highest level and is sufficient for 30 days.
The nationalization of the coal sector in 1973 meant that domestic coal could only be mined by companies in the public sector. We have the world’s largest coal miner at Coal India Limited (CIL), which has seen an unprecedented increase in production of 140 MT in the past six years. It will continue to play an important role in ensuring energy security. While state coal companies improved production, safety, and prioritized employee well-being, the country’s demand for coal continues to grow at a very rapid rate. It is a harsh reality that the TACC for coal imports from 2009-10 to 2013-14 was 23%. With these interventions, the rate was reduced to 2% in Modi-I (2014-15 to 2018-19). Still, we imported 251 MT of coal in 2019-20 worth ~ 1.58,865 crore, despite having the fifth largest reserves in the world.
Therefore, it is clear that the private sector must be incorporated to meet the needs of the nation. The policy of allowing private coal mining to captive users has been around for a long time. However, it has failed to excite the private sector. The Modi government has approved rules for the open auction of mines to the private sector without restrictions.
This is a vintage development for several reasons. One, global coal mining companies, which until now have been banned from mining coal in India, can now invest and introduce their best practices. Second, the Indian industry can invest in a commodity business where domestic supply does not meet demand, opening an opportunity to substitute 135 MT coal imports.
The indirect effect in the sectors that use coal, such as steel, energy and aluminum, will be significant. With the sector unlocking now, coal-using companies will be free to focus on their core business while sourcing coal from professional miners. Mines will no longer be assigned based on a “match” to the needs of the individual captive user. Rather, it will be auctioned based on economic efficiency.
On the process side, the coal ministry has streamlined the mining plan approval process from 90 days to 30 days. Several bottlenecks have been removed or amended in the past five months. For example, the law previously excluded companies without mining operations in India from participating in auctions. This bar has been removed, paving the way for local and foreign mining companies and non-mining companies to also participate in the national coal sector.
Second, the government has introduced a more equitable income distribution system, moving away from fixed rates to an ad valorem system. So when prices rise, the miner shares more with the government and, if they decrease, shares less. This is equitable for both parties.
Coal sector reforms are not just investments and improving coal production. It has the innate potential to give way to immense job opportunities and provide a boost to the government’s Make in India program, as coal mining operations require large machines and manpower. Furthermore, it will lead to the induction of new technologies and competition in the sector. Consequently, the economies of the coal-mining states such as Jharkhand, Chhattisgarh, Madhya Pradesh, Maharashtra and Odisha will also grow, since all the income from these auctions will correspond exclusively to them.
Reforms in the coal sector are a continuous political evolution. The recent move to unleash the sector marks a paradigm shift in the way business in the coal sector will be conducted. By doing this, we have ensured the growth and prosperity of CIL. It has been given the goal of producing one billion tons of coal by fiscal year 2023-24. For this necessary capital, coal blocks and an expedited approval mechanism have already been implemented. The government will also ensure that the well-being of coal miners in private mining is on par with the CIL workers’ state.
Such bold movements have the potential to disrupt entrenched interests and will upset many. But the government has no doubts as we move forward, these reforms will increase self-sufficiency, eliminate operational efficiencies, and usher in an era of greater prosperity.
Pralhad Joshi is the Union’s coal minister, mines and parliamentary affairs
The opinions expressed are personal.