Centre Opens Up Coal Sector

10 Jan 2020

On 8^th January, 2020, the Union Cabinet approved an ordinance to amend the Mines and Minerals (Development and Regulation) Act, 1957 and the Coal Mines (Special Provisions) Act, 2015, to open up coal mining in the country to non-coal companies while removing the end-use restrictions of the mining blocks in the country.

Objective

To attract investments and boost domestic coal production.

Need

At present, Section 11A of the Mines and Minerals Development and Regulation (MMDR) Act allows the government to auction coal and lignite mining licenses only to companies engaged in iron and steel, power and coal washery sectors. This restriction on end use has badly affected participation in the auctions of coal mines.
Despite having the world’s fourth largest coal reserves, India imported 235 million tonnes (mt) of coal during 2018-19, of which 135mt valued at Rs171,000 crore could have been met from domestic reserves.
Only 29 coal blocks were auctioned since 2014, when the Supreme Court cancelled 214 coal blocks, due to end-user restrictions-meaning coal produced from them could be used only for the designated captive purpose only and not traded in the market.
The government aims at greater participation in commercial mining of coal and targets 1000 MT coal production by 2023.

Key Points

The ordinance will amend the current proviso in the law that allows only companies in coal mining to bid for mines. Any company meeting the minimum criteria will now be allowed to bid for mines.
It provides for the allocation of coal blocks for composite prospecting license-cum-mining lease and removes restrictions on its end-use.
It provides for doing away with the requirement of previous approval in cases where the allocation of blocks was made by the central government.

Impact

Ending Monopoly: The move will help create an efficient energy market, usher in competition and reduce coal imports, while also ending the monopoly of state-owned Coal India Ltd.
Making India Self-Reliant: In today's time when the Oil prices are very uncertain, this decision is path breaking in making India self-reliant.
Ease of Doing Business: It will contribute to the ease of doing business, the democratisation of the sector by opening it to anyone willing to invest.
Increased Investment and Employment: The removal of end-use restriction will allow anyone to participate in coal auction and attract large investment. Large investment will create jobs and set off demand in critical sectors such as mining equipment and heavy commercial vehicles.
Boost to Infrastructure: The government also aims to increase domestic coal production, bringing the steel prices down, which will help in boosting the infrastructure sector.
Access to Technology: The move will also help India gain access to sophisticated technology for underground mining used by global miners.
Improved Efficiency: Streamlining the auction process will also lead to greater efficiency and more effective outcomes. It will allow for seamless transfer of environment and forest clearance in operational mines. Shifting from a two-stage ascending forward online electronic auction to a single-stage sealed bid will help dampen aggressive bidding.

Criticism

The Centre of Indian Trade Unions (CITU) has criticized the government’s decision. According to it, to end captive coal mining would be disastrous for the industries concerned including steel, power and aluminum.
The move has been termed as retrograde because decision to promulgate an ordinance to amend two laws concerning mining would remove the restriction of end-use so that foreign and domestic bidders for mine blocks could convert the natural resources into items for trade and export.
This would in turn, would expand the grip and control of foreign players with Indian private contractors as their junior partners, on the country’s vital mineral resources, much to the detriment of national interests.

Issues with Coal Mining in India

Governance Issues

Coal mining in India is nationalized by law and the public sector Coal India Ltd (CIL) supplies more than 80% of India’s domestic coal. While nationalization of the coal industry in 1973 helped to improve operating practices, labour safety and coal production, in more recent times led to concerns about the potential abuse of its dominant position by CIL by forcing its customers to accept severely one-sided supply agreements.
Majority of the coal projects have been halted and delayed due to issues in acquiring land and strict rules and regulations. At present, multiple clearances are required from the government for commencement of new opencast projects like site clearances formining lease, forestry clearance and environment clearance.
Another issue relates to the allocation of captive mines to end users. According to the Government, the objective of allocating captive coal blocks was not to maximize revenue but to rapidly increase coal production and reduce electricity tariffs. However, it neither imposed any conditions on coal block allottees to pass on the benefits of cheap coal to consumers, nor did it follow up diligently to ensure that development of these blocks progressed satisfactorily. There fore, neither did production increase nor did electricity tariffs come down.
The lack of account ability with respect to coal block allocations meeting their stated objectives and alleged favouritism in allocation of coal blocks at the cost of the general public and economic efficiency are illustrative of the problems faced by the coal sector.
Lack of transparency is another problem that plagues the sector. An example of this is the way ‘linkages’ or ‘letters of assurance’ of coal supply are granted to coal consumers such as power plants, based on which such consumers proceed with their plans.

Technology & Infrastructure Issues

Indian coal reserves continue to be classified using an outdated methodology. Absence of geophysical and geochemical data, use of obsolete and time consuming drilling equipment hinders the growth of mining sector. As a result; there is great uncertainty about economically extractable coal reserves in India.
One of the major issues being faced by the industry for the coal movement within India is transportation and infrastructure. Bottlenecks in domestic coal transportation and lack of proper road connectivity further increase the challenge. Also, availability of railway wagons and mismatch of demand and supply of wagons and coal off-take affects production capacity

Environmental Issues

Coal Mining has multiple adverse impacts on the environment: disturbance of the land resource, adverse effect on river channels and aesthetical deterioration of the landscape, Acid mine drainage from opencast as well as underground mines.
At the stage of mining, activities like drilling, blasting, excavation, construction of haul roads, movement of heavy earth moving machinery, etc. results in emissions of particulate matter and dust. These emissions cause significant human and social impacts by causing air pollution and ecological disturbances.
Degradation of land is perhaps the most serious impact of coal mining operations. Open cast mining causes a much greater degradation to land than underground mining.
Coal mining activities adversely degrades the quality of water by not only lowering the pH of the surrounding water resources but also by increasing the level of suspended particulate solid, total dissolved solids and some heavy metals.

Social Issues

Mining activities, in general, generate huge social costs in the form of displacement, loss of livelihood, and social exclusion.
As 90% of India’s coal is produced from open-cast mines, this requires acquisition of large tracts of land – often from agricultural or tribal areas. This leads to lot of displacement and loss of livelihoods among the people, because though seemingly reasonable policies for compensation exist on paper, they are not implemented effectively.
Taken together, such socio-environmental practices lead to social distress and alienation of the local population. In turn, this leads to resistance to mining activities, and with local citizens become less willing to give up their land and mobilize them selves against such activities. This leads to complaints from coal companies about the difficulty of acquiring land for mining and hence the difficulty of increasing production to meet demand, in turn affecting the country’s overall energy scenario and economic growth.