India Begins Coal Block Auction

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India took its first step on the road to coal mining reform by initiating the auction of select coal blocks over the weekend. Environmentalists, though, were not too happy about it.

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In September, India’s top court canceled 98% of coal mine permits previously allotted to companies over the last two decades, leaving many analysts shell-shocked and pondering the future of the country’s energy sector.

The new government promised it would usher in reforms in the sector quickly. A new bill — the Mines and Minerals (Development and Regulation) Amendment Ordinance — sought to make amends to the process of coal mine allocations. The previous process was stained by corruption allegations. Previous governments had merely allocated coal mines but under the new system, companies were given an opportunity to bid for mining rights in the interests of transparency.

The government has put 19 blocks up for auction in the first round that started on Feb. 14. This phase will end on Feb. 22, and all sale formalities will be completed by March 31. The mines being auctioned are in the provinces of Odisha, Jharkhand, Chhattisgarh and Goa.

The first few days have seen aggressive bidding for coal blocks by some of India’s biggest companies, such as Reliance, Adani Power and Hindalco. Some of the other companies who technically qualified to bid were Jindal Steel and Power Ltd. (JSPL), Bharat Aluminium Co Ltd. (Balco), Essar Power M P Ltd., GMR Chhattisgarh Energy Ltd., GVK Power, JSW Energy, Ambuja Cement and Hindustan Zinc.

The auction process is likely to fetch the Indian Government an estimated $3.4 billion (Rs 21,000 crore). If that happens, the government of India will use the money to clear its fiscal deficit.

India’s estimated coal reserves are at about 301 billion metric tons, but Indian companies have had to import coal because of a mining stoppage caused by the corruption allegations followed by the court order.

While the government is expectedly pleased with the manner in which the auction is progressing, saying the poorer provinces would ultimately reap the harvest of coal block auctions, some environmentalists had a different take. According to them, the present government missed the bus in really undertaking “true reforms” on the natural resource allocation. There was no point in allotting the mines first without evaluating their impact on the surrounding environment, was their take.

There are about 60,000 applications for mining concessions pending with central and state governments. The government said it would implement a different method for auctioning coal blocks meant for power producers, as compared to the present round which was largely meant for coal to be used by steel and cement producers.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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