Coal mining in India is 235 years old. The pace of growth of this sector was sluggish till the late 1940s, with the production being a mere 30 million tonne (mt) in 1946. Soon after independence, the government realized that coal mines were not adopting scientific and safe practices. Also, due to the growing domestic consumption, an urgent need was felt for a more systematic and scientific development of the industry.
Importing still? Workers at a coal mine. Coal reserves in the country are estimated at 267 billion tonnes—one of the richest in the world. Hindustan Times
Thus began the task of nationalization of the coal sector.
The Coal Mines (Nationalisation) Act, 1973, was passed vesting ownership and management of coal mines with the Union government. As of date, Coal India Ltd (CIL), through its various subsidiary colliery companies, and the Singareni Collieries Co. Ltd are the two public sector mining companies.
By an amendment to the Nationalisation Act in 1976, two exceptions were made:
(i) coal mining for captive consumption by private companies producing iron and steel, and (ii) sub-lease for coal mining to private parties in isolated small pockets not amenable to economic development and not requiring rail transport. A 1993 amendment further allowed captive mining for generation of power, washing of coal obtained from mines and other end uses as notified by the government from time to time.
Also Read More on Budget 2009
The ministry of coal estimates a shortfall in coal supply of around 51mt by fiscal 2011-12.
With several power projects being developed in India, demand for coal is bound to increase, adding to the demand-supply gap. Coal reserves in the country are estimated at 267 billion tonnes—one of the richest in the world. However, instead of being an exporter, India has to import coal to meet its requirements. A long-term policy for the development of coal resources is, therefore, essential.
Further, factors such as emergence of coal mafia, unhealthy working conditions, capital requirement for augmentation of mining capacities and the government’s own divestment policy have prompted the government to rethink allowing private sector participation in non-captive coal mining.
In February 1997, the cabinet approved a proposal to amend the Nationalisation Act to allow non-captive coal mining.
However, this met with stiff opposition from trade unions, who expressed concerns over unscientific mining and possible labour exploitation. Due to this, it took at least three years for the Bill to be formulated and it was introduced in Parliament in 2000. The Bill is yet to be passed even after eight years.
In February 2006, the government permitted 100% foreign direct investment under automatic route for captive coal mining by power projects, iron and steel, cement production and other eligible activities permitted under the Nationalisation Act.
Since coal mining is a highly capital intensive industry and the gestation period is very long, the government will have to provide incentives to private players to ensure viability of operations. Already, local and foreign players are waiting for the government to announce opening up of the mining sector for private participation. Rio Tinto, ArcelorMittal, Titan Mining, Reliance, Sterlite and JSW Steel, among others, have evinced interest in the recently floated global expression of interest by CIL for developing abandoned mines.
The day is not far when the government will suggest a road map for allowing private sector companies to carry out non-captive development and extraction of coal. This will bridge demand-supply gap and also improve quality. Additionally, it would benefit large coal-consuming industries such as thermal power, steel, cement and fertilizers and chemicals. Greater efficiency would be achieved when public sector mining companies face competition.
Nanda Shah is associate director and Deepak Bahirwani is manager at PricewaterhouseCoopers.
Respond to this column at firstname.lastname@example.org