Indian government launches coal reforms, aims to save on imports

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Sector experts in India are hailing the new coal mining and mineral sector reforms announced a few days ago by the country’s finance minister, believing the reform will open up commercial coal mining, attract investments and save on India’s import bills, thus pushing self-reliance in coal production.

Despite sitting on the world’s fourth-largest coal reserves, India still imports about 235 million tons (MT) of coal. Some reports estimate that of this chunk, at least 135 MT can easily be supplied from domestic reserves or the country’s mines.

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The announcement of liberalization of the mining sector was part of an overall stimulus package to tackle the economic fallout of the COVID-19 pandemic.

In 2018, the Indian government permitted commercial mining by private entities, setting a goal of 1.5 billion tons of coal by 2020. Of this, 1 billion ton was to be from Coal India Ltd, with the rest from other parties.

As part of the latest round of reforms, the finance minister said that to revamp the coal sector the government was opening up commercial mining in a move to cut down India’s import bills, Livemint reported.

To attract investments in coal mining, the government had earlier promulgated the Mineral Laws (Amendment) Ordinance, which permitted coal mining by any entity present in sectors other than steel and power. The government also scrapped the captive end-use criteria.

As part of the new measures, promotion of coal gas gasification through rebate in revenue share, auction of 50 new coal and 500 mineral blocks, and a fresh multimillion investment to create transportation infrastructure for evacuating 1 billion tons of coal from state-run Coal India Ltd (CIL) mines.

A few days ago, the Cabinet Committee on Economic Affairs also approved a new auction process for coal and lignite blocks on a revenue-sharing basis.

The finance minister has also promised further reforms in the mineral sector, with no distinction between the captive and non-captive mines that will allow transfer of mining leases.

Experts believe all this will usher in the expected reforms.

Ratings agency CRISIL has said the move to open up commercial coal mining retains the possibility of halving the annual expenditure incurred on importing non-coking coal because of substitution through domestic production, India Infoline reported.

Sachin Gupta, senior director of CRISIL Ratings, was quoted as saying “the liberalization of coal mining would be a significant substitution effect by improving the availability of coal and help meet rising domestic demand.”

“Around half of India’s humongous reserves – most of which are non-coking coal – has not yet been allocated for mining so the potential is substantial,” Gupta continued.

According to CRISIL, India imported an estimated 180-190 MT of non-coking coal through March 2020.

As of now, the state-owned Coal India and Singareni Collieries produce over 90% of the coal, according to India Infoline, while domestic supply grew at a compounded annual growth rate of 3% over the past five fiscal years.

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CRISIL believes that, once commercial mining picked up, independent thermal power plants and captive power plants would be able to substitute their annual imports of 80-90 MT, India Infoline reported, but about 50 MT would continue to be imported by the thermal plants designed to operate only on such feedstock.

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