Government unveils auction process for coal mines3 min read . Updated: 18 Jun 2020, 11:39 PM IST
The auction of 41 coal blocks, announced by PM Narendra Modi, is expected to attract ₹33,000 crore in investments, with private miners sharing revenues with the government
Ending seven decades of restrictions, India on Thursday fully opened commercial coal mining for the private sector through auctions designed to boost production, reduce imports and raise state revenues.
The auction of 41 coal blocks, announced by Prime Minister Narendra Modi, is expected to attract ₹33,000 crore in investments, with private miners sharing revenues with the government.
Thursday’s decision to auction the coal blocks formalizes last month’s Cabinet Committee on Economic Affairs decision to begin a new process to award coal and lignite blocks. The blocks are located across Madhya Pradesh, Chhattisgarh, Jharkhand, Odisha and Maharashtra.
“Self-reliance is not possible without a strong mining and minerals sector; because minerals and mining are important pillars of our economy. After these reforms, now coal production and entire coal sector will become self-dependent. Now market has been opened for coal; so, any sector can buy as per their requirements," Modi said at the launch of the auction.
There will be no restriction on the sale and utilization of coal from the mines. Earlier, blocks were awarded on a fixed payment per tonne basis, which the government believed was hurting production. The coal auction process will serve as a template for the allocation of natural resources in India.
Despite hosting the world’s fourth-largest coal reserves, India imports around 235 million tonnes (mt) of coal a year, of which around 135 mt worth ₹1.71 trillion could be sourced locally.
“This auction process marks the opening of the Indian coal sector for commercial mining and will enable the country to achieve self-sufficiency in meeting its energy needs and provide thrust to economic development and employment generation," coal, mines and parliamentary affairs minister Pralhad Joshi said at the launch.
According to the coal ministry, these 41 mines are expected to hit a peak production of 225 mt, generating around 15% of India’s coal output in 2025-26. The mines are expected to attract a capital investment of around ₹33,000 crore over the next 5-7 years, adding ₹20,000 crore annually to state government revenues.
“Commercial coal mining auctions are completely different from the earlier regime of restricted sectors, use and price. Now, there are no such restrictions at all. The auctions have terms and conditions which are very liberal, allowing new companies to participate in the bidding process, reduced upfront amount, adjustment of upfront amount against royalty, liberal efficiency parameters to encourage flexibility to operationalize the coal mines, transparent bidding process, 100% FDI through automatic route allowed and reasonable financial terms and revenue sharing model based on the National Coal Index," a coal ministry statement said.
Modi also said India plans to gasify 100 mt of coal by 2030, that will require an investment of ₹20,000 crore. Steps such as coal gasification will help protect environment, he said.
The government is trying to promote coal gasification through rebate in revenue share, auctioning 50 new coal and 500 mineral blocks, and an investment of ₹50,000 crore to create transportation infrastructure to evacuate 1 billion tonnes of coal from the mines run by state-owned Coal India Ltd.
New Delhi’s push to raise natural resources production to kick-start economic growth, with the private sector as a key stakeholder, comes at a time when the window for fossil fuels is rapidly closing, and the global energy landscape is rapidly evolving. There have been fundamental changes in the investment culture amid growing climate concerns.
“The launch of the auction process for commercial coal mining is a transformative reform in the energy sector. However, environmental concerns on coal projects and permitting delays are likely to result in muted interest from international investors. We expect strong interest from domestic mining and power companies since bid terms are attractive as compared with other mineral auctions," said Ramanuj Kumar, partner at Cyril Amarchand Mangaldas.
Modi said that while implementing coal reforms, it has been kept in mind that India’s commitment to protect the environment doesn’t become weak.