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Coal Ordinance: Experts doubt if it will be a lasting solution for the troubled sector

Power producers will have to renegotiate tariffs with the state distribution companies they supply to. "It would have been preferable to hand the operating mines to a PSU — like CILBSE 0.51 % or NMDC — and ask them to extract coal through mine developer and operator (MDO) contracts signed on a cost-plus basis," says Chatterjee. This coal, he adds, should have been sold at CIL rates and state distribution companies should have
been asked to reset their purchasing tariff. "The remaining blocks should have been sold through a completely open auction.

The cost of not doing this is that we will repeat history." A senior manager of Thiess India, the Indian arm of a leading Australian mining firm, sees a problem with a clause where companies bid for captive use, and a nod for commercial mining might follow later. "Only crony capitalists will bid using such assumptions since they are confident of their clout," he says.

Will it improve mining technology?

"If we want to maximise coal production, what should we do?" asks Dipu. "Should we give blocks to captive companies or someone who specialises in mining?" At this time, feels the Thiess manager, foreign companies are unlikely to enter. "The current rules permit 100% FDI (foreign direct investment) in coal mining as long as it is for captive use," he says on the condition of anonymity. "And no foreign miner will come here only for supplying coal for captive use, since that ties in their entire investment to one customer." Also, to accommodate as many companies as possible, the coal ministry had divided coalfields into numerous small blocks. With the NDA choosing to follow that categorisation, says the Thiess official, "captive mining does not provide economies of scale."

Will it balance industry and environment?

When CIL was the only company mining coal, it had the option to first mine in areas with low density of population or marginally forested areas. However, a company with a captive coal block did not have such options. The outcome: India began losing her prime forests, like Mahan and Hasdeo Arand, faster.

With the government expressing its intention to auction all 204 cancelled coal blocks in the immediate future, the threat of avoidable environmental damage remains. According to the Coal Controller's Provisional Coal Statistics (2009-10), the peak rated capacity of all captive blocks allotted by March 2010, which should come into production by 2015, was 705.8 million tonnes (MT) per year. That's the new production that can happen.

By comparison, India imported 110 MT of coal in 2013-14. In other words, India could end up opening many more mines than it needs. Also, the ordinance says companies will be allowed to supply coal from their mines to multiple end-use plants, which is likely to lead to an intensification of mining in these areas.

Source: Economic Times