If the government decides to allow companies with captive coal and ore mines to sell excess output—as recent reports suggest it is considering—this would be a small step in the right direction, but it must not lose sight of the need for wider reforms. Coal mines are allocated by the Centre and iron-ore mines are given through negotiated deals with state governments, in a manner that allows for much political leeway. We need a transparent system that induces the most efficient extraction terms and lets the company decide what to do with its output, based on the market factors of demand, supply and pricing. That alone would bring in much-needed investment into these sectors.
Unfortunately, conflicts between concerned ministries and between the Centre and states, fuelled by coalition politics, have slowed development on the pending new national mineral policy and in deregulating the coal sector.
Take the case of iron ore. In its January 2007 note on the mineral policy, the ministry of mines stated that new technologies in survey, exploration and extraction have changed the approach to resource availability away from the simple need to conserve minerals for domestic use towards getting minerals for the best price and the best price for minerals. Sound logic. The problem comes while managing convergence of views among interested parties.
The resource-rich states want only companies, such as Posco and Tata Steel, that are willing to invest in value addition (manufacturing capacity), and not those that will mine and sell the ore, either to consuming industries in neighbouring states or abroad. Naturally, the steel ministry as well as adversely affected companies oppose this stance when it comes to domestic industry’s concerns, but will be happy to support a ban on exports. The mining ministry’s view is that companies with plants in a state should be given preference in allocation of captive mines, while emphazising that if there are no parties who want to invest in manufacturing capacities, then others wanting to invest in mines alone must get these—with no delays. The mineral policy, based on some of the Anwarul Hoda committee’s suggestions, seems to broadly reflect such thinking.
But we argue that mining rights should be auctioned in a fully transparent manner, the states holding the reserves should get the highest possible royalties, and the winning bidders should be able to use and/or sell/export the output as it deems commercially feasible. This would mean delinking of ‘rent’, or state earnings out of such reserves, from investment location decisions by consuming industries.
Now take the case of coal. In the immediate context, the news report suggests that the sale of surplus of coal in the hands of the captive miners—say, a thermal-power producer—may be channelled through the state-owned Coal India Ltd (CIL). Since the sector faces artificial shortages due to a price control regime, this would correctly ensure there’s no undue profiteering by the sellers. But. It would be only an interim solution. A compromise that has its genesis in the lack of political guts to introduce free sale of coal.
The country has shifted from a long-held monopoly by CIL to a situation in which private mining is allowed only for captive purposes. And coal mines too are not allocated in a transparent manner, which hinders the commerciality of such investment decisions. We need deregulation of the coal sector and a regulator for mine allocation. This will unlock the value of our substantial coal reserves and also ease supply constraints for the thermal-power sector.
A rough estimate says only 10% of our land mass has been explored for mineral wealth. We need to clear ambiguities in policy and speed up the processes involved, else much of our resource edge will stay untapped.
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