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Modernisation of coal policy in India : A way forward
7/10/2020 12:14:25 AM

Dr. Rajkumar Singh

To boost the fuel's production in the country, India’s Minister of Finance Nirmala Sitharaman made recently an announcement that is the part of the fourth tranche of the Rs 20 trillion stimulus package to mitigate the economic fallout of the coronavirus pandemic. She also said about the further reforms in the mineral sector, with no distinction between the captive and non-captive mines that will allow transfer of mining leases. The other measures include promoting coal gas gasification through rebate in revenue share, auctioning 50 new coal and 500 mineral blocks, and an investment of Rs 50,000 crore to create transportation infrastructure for evacuating 1 billion tonnes of coal from state run Coal India mines.The revenue share mechanism has been allowed instead of fixed payment per tonne to promote coal mining. Despite having the world’s fourth largest coal reserves, India imports around 235 million tonne (MT) of coal, of which around 135 MT worth ₹171,000 crore can be met from domestic reserves, coal and mines. In the context to attract investments in coal mining, the government had earlier approved the promulgation of Mineral Laws (Amendment) Ordinance, 2020. It allowed coal mining by any company present in sectors other than steel and power, and scrapped the captive end-use criteria.
History and old policy of coal in India
Coal in India was first mined in 1774 when John Sumner and Suetonius Grant Heatly of the East India Company commenced commercial exploitation in the Raniganj Coalfield along the Western bank of Damodar River. Growth remained slow for nearly a century due to low demand. The introduction of steam locomotives in 1853 boosted demand, and coal production rose to an annual average of 1 million metric tons (1.1 million short tons). India produced 6.12 million metric tons (6.75 million short tons) of coal per year by 1900 and 18 million metric tons (20 million short tons) per year by 1920. Coal production rose steadily over the next few decades, and was boosted by demand caused by World War I. Production slumped in the interwar period, but rose to 30 million metric tons (33 million short tons) by 1946 largely as a result of World War II.
In Independent India the coal was considered so important that during the early 1970's, the government nationalized most coal mines, thereby permitting only government-owned entities to participate in coal mining. This eventually led to the birth of Coal India, and the company is now responsible for over 80% of the nation’s domestic production. Unfortunately, they’ve not been very efficient in meeting production quotas. For instance, last September, heavy rains flooded their mines, and they weren’t able to meet demand. However, the problem didn’t start last year. Coal India has been falling short of production targets for a few years now. So clearly, there are some larger issues at play here. And outside of Coal India, mining licences were offered to power projects and companies that used the coal themselves — steel plants, aluminium plants, etc. In effect, mining for commercial purposes was all but restricted and companies also needed to have prior experience to bid for coal mining units. But with the new set of reforms, those restrictions are gone now. Any company registered in India can try and produce coal now.
Policies of Modi Government
The Indira Gandhi administration nationalized coal mining in phases – coking coal mines in 1971–72 and non-coking coal mines in 1973. With the enactment of the Coal Mines (Nationalization) Act, 1973, all coal mines in India were nationalized on 1 May 1973. This policy was reversed by the Narendra Modi administration four decades later. In March 2015, the government permitted private companies to mine coal for use in their own cement, steel, power or aluminium plants. The Coking Coal Mines (Nationalization) Act, 1972 and the Coal Mines (Nationalization) Act, 1973 were repealed on 8 January 2018. In the final step toward denationalization, on 20 February 2018, the government permitted private firms to enter the commercial coal mining industry. Under the new policy, mines will be auctioned to the firm offering the highest per tonne price. The move broke the monopoly over commercial mining that state-owned Coal India has enjoyed since nationalisation in 1973.
Today, India has the fifth largest coal reserves in the world, and is the second largest producer of coal in the world, producing 716 million metric tons (789 million short tons) in 2018. In March 2017, India had 315.14 billion metric tons (347.38 billion short tons) of the resource. The estimated total reserves of lignite coal that month was 44.70 billion metric tons (49.27 billion short tons). Due to high demand and poor average quality, India is forced to import high quality coal to meet the requirements of steel plants. India's coal imports have risen from 49.8 million metric tons (0.0549 billion short tons) in 2007–08 to 191 million metric tons (0.211 billion short tons) in 2016–17. India's coal exports rose from 1.63 million metric tons (1.80 million short tons) in 2007–08 to 2.44 million metric tons (2.69 million short tons) in 2012–13, but subsequently declined to 1.77 million metric tons (1.95 million short tons) in 2016–17. Dhanbad city is the largest coal producing city.
The current status
In 2018, the government had allowed commercial mining by private entities. The Centre had set a mining target of 1.5 billion tonne of coal by 2020. Of this, one billion tonne is to be from Coal India Ltd and 500 million tonne from non-Coal India sources in line with the government’s push to raise natural resources production to kickstart economic growth.The government's move comes at a time when the window for fossil fuels is rapidly closing, and the global energy landscape has been rapidly evolving, with fundamental changes to the investment culture amid growing climate concerns. This comes in the backdrop of Indian economy guiding to a standstill.
And so the government has promised to invest Rs 50,000 crore to create the transportation infrastructure that would incentivize more players to enter the ecosystem. Finally, India is also making plans to set up a coal trading platform- a sort of ‘coal exchange’ where a large number of sellers and buyers can get together to trade coal as a commodity.
Think about it, no single seller can determine the price of an object. You can only discover the price when there’s a large amount of buying and selling happening on the open market. And the government wants to make sure that the prices reflect the sentiments of this larger group as opposed to a small coterie of coal barons. We still don’t know how the government plans to execute this little gambit. But they seem to be pretty serious about doing this. All in all, it seems that the government desperately wants to be self-sufficient when it comes to coal production. Last year, low domestic production and increased demand meant we had to spend Rs.1.71 lakh crore on importing 235 million tonnes of coal. If all goes well, maybe we might never have to do this again.
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