De-regulate coal sector, says CII

Confederation of Indian Industry has set up a Task Force to study allocation of mineral resources worldwide, with special reference to coal, and recommend approaches to allocation in India

A CII delegation led by B Muthuraman, chairman, CII Task Force on Bulk Mineral Allocation with specific reference to Coal and Vice Chairman, Tata Steel Ltd. had called on both Sriprakash Jaiswal, Minister of Coal and S K Srivastava, secretary, Ministry of Coal on May 31, 2013, to brief on the Task Force recommendations.

Over the past several years, mineral resources, especially coal, have been allocated based on screening process to multiple public and private sector participants. This approach has not only resulted in huge coal supply deficit, but has also stalled the development of proper mining industry in the country, stated CII.

“Private players should be allowed to undertake exploration and mining activities to accelerate the pace of exploration and mining in the country. However, strict pre-qualifying criteria with due consideration to competitiveness, proven track record, should be maintained before allocating exploration and mining licenses,” stressed B Muthuraman, ex-president CII and chairman of the Task Force.

To accelerate exploration and mining of coal, different resource allocation policies for blocks classified under known and unknown mineralised areas are needed.

“The Indian mining policy will need to take a cue from the global best practices particularly around de-regulating the coal sector to allow private exploration and commercial mining,” Chandrajit Banerjee, Director General, CII, said. For known mineralised areas, blocks should be allocated based on revenue share bids to technical and financially qualified bidders, with a clear guideline of the minimum work programme.

For unknown mineralised areas, a two part approach may be followed - first, allocate more funds to public sector undertakings to enhance their exploration capability. Second, use a composite bid of minimum work programme and revenue share to technically and financially capable bidders for allocation of resources, suggested CII.

The above allocation process requires two enablers - an independent coal regulator to manage the allocation process and pricing methodology for revenue share estimation. Independent regulator (on the lines of DGH for petroleum sector) for the coal sector, should have the mandate of managing the allocation process, opening new exploration areas, mine planning and development, compliance by developers and acting as a central repository of exploration data and pricing.

Pricing should eventually tend towards market determined rates, once the supply builds up to match the demand for coal in India. Currently, Coal India’s prices can be used as a proxy, with the risk that some high cost mining assets will not come into production. Once the coal regulator is in place, its guidelines can be used to determine prices.

The approach outlined above will ensure transparent allocation and also faster exploration and development of coal blocks. There needs to be better methodology of giving various clearances so that blocks that get allocated come into production quickly. Towards this objective, a single window clearance would be useful.

India’s power sector relies on coal to the extent of 65%. Over the past several years, over 200 coal blocks have been allocated to public and private sector companies. In the current lot of 54 blocks to be allocated shortly, 0.8 billion tonnes of reserves are in known mineralised areas and 3.4 billion tonnes are in partially known mineralised areas. Fifteen billion tonnes are in unknown mineralisation reserves, requiring further exploration, said the CII Task Force report.

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