The coal mining sector in
Background
The
A brief update on the Amendment and the key facts leading up to it are discussed in this article.
From Nationalisation to Ad-hoc Allotments to Cancellation of Allotments
The Mines and Minerals (Development and Regulation) Act, 1957 along with the rules and regulations under it (MMDRA) read with the Coal Mines (Nationalisation) Act, 1973 (Nationalisation Act) regulated the coal sector in
Coal India Monopoly
As a result of the nationalisation,
Whilst limited private sector participation was allowed in coal mining for captive consumption,
Comptroller and Auditor General Report & Cancellation of Allotments
In 2012, the Comptroller and Auditor General published its report on allotments of coal mines in
Pursuant to these, in August and subsequently in
In the meantime, the Supreme Court continues to monitor the investigations being conducted by the CBI and other investigative authorities for irregularities in the allotment of coal mines between 1993 and 2010. Per the reports, three preliminary enquiries and 53 cases have been registered by the CBI.
Road to De-Nationalisation
In the aftermath of the Supreme Court Judgement, the Coal Mines (Special Provisions) Act, 2015 (CMSPA) was enacted to deal with the cancelled blocks. The CMSPA amended the Nationalisation Act and the MMDRA and introduced three categories of coal mines specified in Schedule I, II and III. The CMSPA is a forward looking enactment and paved the way to allow greater private participation and end the monopoly of
Schedule I, II & III Blocks
Schedule I coal mines were all the blocks that were cancelled by the Supreme Court Judgement. Schedule II coal mines include the 42 producing and ready to produce coal mines forming part of the Schedule I coal mines. Schedule III include 32 coal mines of the Schedule I coal mines which were substantially developed coal blocks. Schedule II and III mines were reserved for allocation only for specified end use (i.e., power, steel, cement, etc.). In the years since the enactment of CMSPA till the end of 2017, 84 coal mines (53 through allotment and 31 through auction) have been successfully allocated by the GoI.
The CMSPA paved the way for change in the coal sector. While earlier only those companies which could use the coal for captive purposes were eligible to participate in the auction, the CMSPA partially removed this restriction and allowed companies having prior experience and already engaged in coal mining in
Captive Coal
The policy on captive use of coal blocks has had some major drawbacks. For one, it did not result in optimal utilisation of an important natural resource of the country given that the use was dependent on the industry for which a coal block was allotted. If such industry did not do well because of market forces or other factors, the coal production suffered. For example, steel can be cyclical and if there was a downturn in the steel industry, there was a resultant impact on captive coal blocks which could not be used for an industry that was operating at better capacity, leading to an increase in the import of coal by industries. The lack of competition in commercial coal mining meant that the sector and associated industry/infrastructure (washery, separation, etc.) did not benefit from best practices, technologies, equipment, etc. and efficiencies decreased unlike sectors like telecommunications, construction and power which have all benefited from increased competition and foreign investment. Cleaner coal is also the need of the hour and is an area where
The GoI having taken note of these issues approved the methodology for auction of coal mines under the CMSPA in 2018 (2018 Order). Prior to this, the GoI had also issued the methodology to fix the floor or reserve price for auction of coal mines in 2014. The 2018 Order provided for commercial coal mining for private sector with no restriction on the sale and/or utilization of coal from the coal mine. The auction of the coal mines was sought to be based on prescribed bidding parameters. In line with the 2018 Order, the foreign direct investment (FDI) policy was also amended to reflect the policy change in the coal sector.
Foreign Investment Policy
The FDI policy was amended in 2006 to allow 100% FDI under the automatic route for coal and lignite mining but only for captive consumption by power projects, iron and steel, cement units and coal processing plants. It was further subject to the condition that processing units would not mine or sell coal in open markets. In line with the object of the 2018 Order, the GoI amended the FDI policy in 2019 and approved 100% FDI under automatic route for sale of coal, coal mining activities including associated processing infrastructure, which would include coal washery, crushing, coal handling and separation.
Reforms Under the Amendment
a) Composite prospecting licence-cum-mining lease
The MMDRA and the CMSPA contemplated a two stage concession, prospecting/reconnaissance and thereafter mining. The Amendment allows for grant of a composite prospecting licence-cum-mining lease in respect of coal blocks. This is expected to allow mining of unexplored or partially explored blocks and increase the inventory of coal blocks in
b) Eligibility of bidders
The Amendment removes the restriction of prior engagement in coal mining operations in
This move is likely to see foreign companies which do not have prior experience in coal mining in
c) Schedule II and Schedule III opened up
As mentioned, the CMSPA only allowed allocation of operating or substantially developed coal mines (Schedule II and Schedule III) for specified end-use. Consistent with the 2018 Order, the Amendment removes this restriction to permit companies which are not 'engaged in specified end-use' to participate in auctions for these coal mines, effectively allowing these mines to be used for commercial mining.
d) Reallocation of coal mines
The CMSPA defines a 'prior allottee' and gives power to the nominated authority to cancel the vesting or allotment order granted under the CMSPA. Prior allottees are the coal allottees of Schedule I mines whose allotments were cancelled pursuant to the Supreme Court Judgement.
The Amendment puts an allottee whose allocation has been terminated under CMSPA at the same footing as that of a 'prior allottee' and permits such allottee to participate in the immediate next auction provided that it meets all the prescribed criteria applicable to a 'prior allottee' under the CMSPA.
e) State government's power to allot
A state government cannot grant Mining Concessions for coal mines except with the previous approval of the GoI. The Amendment allows for an exception to this and permits the state government to grant the Mining Concessions for coal without the previous approval of the GoI if (i) the GoI has issued an allocation order; (ii) the area has been reserved by an order of the GoI or the state government; or (iii) a vesting order or an allotment order has been issued by the GoI under the CMSPA.
This could substantially cut down on the time required for new lessees to obtain the necessary approvals, licences and clearances in order to start their mining operations and in turn, facilitate sustained production of coal.
f) GoI to appoint custodian
The Amendment also empowers the GoI to make rules for the Amendment and appoint a designated custodian in respect of Schedule II mines whose auction or allotments are not complete or where a vesting/allotment order has been cancelled for a coal mine under production.
g) Captive use expanded
The Amendment permits a successful allottee to utilize the coal mined by it in the plants of its holding or subsidiary company so long as the holding/subsidiary company is engaged in the same specified end use.
The Amendment is significant as it seems to be the culmination of years of efforts of the GoI to de-nationalise the coal mining sector and make the sector more attractive for private capital. The sector has lagged behind considerably and the reforms under the Amendment will hopefully give it the much need shot in the arm attracting not just local private participation but also foreign investment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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