Will This Reform Bring Energy Security?

Thu, 23 Jun Pre-Open

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The government continues to reform the energy sector. Coal is a primary fuel used for electricity generation. Although the state owned Coal India has a monopoly in mining and related activities, it is not able to meet the growing energy needs of the country. As a result, the country still has to import thermal coal. The ministry has taken initial steps towards commercial mining and sale of coal in India, wherein it would allot the mines to states that would be free to sell the mined coal to interested industries.

The Centre has identified 16 coal mines with an estimated annual capacity of around 40 million tonnes. A state would be able to own a mine in other states as well and use it for commercial purposes. As per the ministry of coal, the government plans to evolve the mechanism of commercial mining by involving the states first and then private miners.

Till 2013, most of the coal blocks allocated to states had an equity structure which favored the mining development operator (MDO). This resulted in private companies ending up with the ownership of the block. The states were only eligible to get royalty from the private companies mining coal for captive use. This arrangement was struck down by the supreme court last year and it cancelled all the allocations to the states.

According to revised mechanism, the states would apply for coal mines citing their demands, reasons for demand and expected sale plan. Joint ventures by the states are allowed as long as the states maintain a majority stake in it. Further, once the coal mines are allocated, the states would not be able to transfer the mine to a private company. This would ensure that mineral rich states earn surplus revenue from selling coal rather than just receive royalty. For the mining operation, states are allowed to employ an MDO by following guidelines as per the new Coal Mines Act,2014.

Commercial mining of coal will have strict guidelines. The role of an MDO will only be that of a contractor. Strictly no joint ventures with an MDO or any change of ownership will be allowed to happen. The mines eligible for commercial mining have been divided for host states and non-host states, wherein a non-mine rich state can own mine in another state and use it for commercial purposes.

Eight blocks will be awarded to state utilities within the state, while the remaining eight will be allocated to state utilities other than those in the host state. The coal ministry has already invited applications from state utilities with allotments expected to be made in August after the coal ministry scrutinizes the applications and makes the allocations.

We think commercial mining of coal is the right step forward and will help bring in additional transparency and pave way for further reforms.

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