At last, the shine seems to be coming back on India's black diamonds. The government's decision to pass the Coal Mines (Special Provisions) Ordinance to allow reallocations of the coal blocks cancelled by the Supreme Court and the incorporation of an enabling provision for the entry of private firms for commercial mining operations sets the stage for a complete overhaul of the coal mining sector.
But large-scale opening up of the sector for commercial mining and the break-up of Coal India's monopoly are two crucial steps that the government has to take sooner rather than later. The coal mining sector is plagued by the archaic mining practices that it adopts, and an infusion of latest global techniques will be possible only when the Coal Mines (Nationalisation) Act, 1973 is amended. Given that the current rules permit 100 per cent Foreign Direct Investment in coal mining only for captive purposes, it is highly unlikely that global players would be interested in investing in this sector.
Further, coalfields have now been parcelled into tiny blocks, not allowing for economies of scale as far as mining is concerned. Study after study globally has indicated that captive mining cannot really optimally utilise the coal that lies within a block, and commercial mining is the only way forward.
And though the process of e-auction will be far more transparent than the earlier allocation mechanism, this system comes with its own share of problems. For example, for operational mines, the new bidders will have to know how much coal has already been taken out of a block. For this figure, the new bidders will have to depend on the declaration from the original allottee.
Second, reports indicate that successful bidders will not just have to pay earlier allottees the cost of the land, plant & machinery but also 12 per cent annual interest on the amount that was originally invested for purchasing the land and setting up plant. I feel that this stipulation will cause allottees whose blocks have been cancelled to submit inflated estimates of their original investments. Further, there's bound to be some dissonance from various States (especially from non-NDA Chief Ministers) on the actual amount that has to be passed on to them from the proceeds of these e-auctions.
For now, the NDA government is not looking at a thorough restructuring of Coal India. FM Arun Jaitley has said that all of Coal India's mining requirements ôin present and futureö would be adequately protected. I feel that the government has decided to proceed with caution on this front, since the last thing it wants is large-scale disruption to Coal India's (already unsatisfactory) output arising out of trade union protests against any proposed restructuring or privatisation of the public sector behemoth.
Finally, though competitive auctions are the way forward, I would like to sound a note of caution. In February, the previous government had put up three coal blocks for auction (with total reserves of 500 million tonnes): Jhirki & Jhirki and Tokisud-II in Jharkhand and Andal Babuisol in West Bengal. The Bengal block received bids from only two companies. The Jharkhand block did not receive any bids. These auctions were finally cancelled by the current dispensation.
My point is that it is still not time to uncork the bubbly. The government has made the initial right moves, but it will have to weather many storms before the nation's coal sector gets back on track.
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