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Government to Auction 41 Coal Blocks for Commercial Mining; Aims to Achieve Self Reliance

By Harshil Jain      22 June, 2020 02:28 PM      0 Comments
Government to Auction Coal Blocks for Commercial Mining

In its bid to promote the ‘Aatmanirbhar Bharat Program’, the Government of India has decided to offer 41 coal blocks in its first auction, to end the monopoly of Coal India and to curb dependence on other countries for its import. The program, launched by Prime Minister Narendra Modi on 18 June 2020, will be implemented under the aegis of the Ministry of Coal, under the provisions of Coal Mines (Special Provisions) Act and Mines and Minerals (Development and Regulation) Act.

Despite having the fourth-largest reserves of coal, India imports a significant amount of coal every year due to high dependence and lack of domestic availability. In the financial year ’20, India imported 251 million tons (MT) of coal worth Rs 1,58,685 crore. However, the government has planned to substitute 135MT of imports with the opening of the coal sector. The blocks are located across central mainland, in the states of Madhya Pradesh, Chhattisgarh, Jharkhand, Orissa, and Maharashtra.

The auction will be based on a revenue-sharing model, rather than on a ‘fixed rate per ton’ basis as was done earlier. In order to augment coal production, the upfront (advance) amount of payment and performance and bid security have also been reduced. Under commercial mining, no restrictions will be imposed on private companies regarding the sale of coal.

“This decision of the Modi government will create more than 2.8 lakh jobs, attract capital investment worth 33,000 crores and generate annual revenue of Rs 20,000 crore for the state governments,” Home Minister Amit Shah tweeted. An official statement said that at the peak of its production capacity, these blocks will produce 225 million tons of coal− about 15 percent of the country’s projected total coal production in 2025-26.

“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 percent FDI through automatic route allowed and reasonable financial terms and revenue sharing model based on the National Coal Index,” Coal Ministry said in a statement.

Ramanuj Kumar, partner Cyril Amarchand Mangaldas, further added, “The launch of the auction process for commercial coal mining is a transformative reform in the energy sector. However, environmental concerns related to 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.”

PM Modi, while addressing the launch event, said that it must be kept in mind that India’s commitment to protecting the environment does not become weak due to the implementation of these coal reforms. India plans to gasify 100 MT of coal by 2030, which will require an investment of Rs 20,000 crore. Such steps will help in protecting the environment, he added.

Shares of Coal India Ltd. rose almost eight percent in intraday trade on the Bombay Stock Exchange after the launch on 18 June 2020.

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