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Govt brings in ordinance to e-auction cancelled coal mines

In a move to decide the fate of coal blocks that were de-allocated by the Supreme Court recently, the government on Monday proposed an ordinance to allow e-auction of mines to private players while adding that state-run companies would be allocated mines directly.

The process would be completed in three-four months, finance minister Arun Jaitley said today, adding that proceeds of the auction would go directly to states where respective mines are located.

However, in what would come as a disappointment to investors as well as key sectors related to coal mining, such as power, the government stopped short of allowing full commercial mining, with the FM stating that the ordinance would only feature an “enabling provision” to allow the same in future.

Coal exploration is nationalized in India, with behemoth Coal India  carrying on most of the mining activity in the country.

However, in a bid to increase coal production, the government, from 1993, started allocating coal mines for “captive purposes” through which end-use private and public companies (such as power, cement and steel) were allowed to mine coal.

It was the allocation process, in which companies were given mines by a screening committee, that was judged by the Supreme Court as “non-transparent, arbitrary and illegal” in September, which cancelled licences while asking companies to pay up fines expected to run over Rs 10,000 crore.

Over the past few years, coal production in India has lagged demand in a big way, especially as power plants (two-thirds of which rely on coal) ramped up capacity.

Coal India, which enjoys a virtual monopoly on mining, has consistently failed to meet its production targets, with analysts holding its outdated techniques as being responsible for the failure to scale up.

As a result, despite sitting on the world’s fifth largest reserves, India is the third-largest importer of coal, and even this has been unable to fully meet the demands of power plants as well as cement and steel companies.

The decision by the government, which has been a logical progression in the wake of the Supreme Court to cancel coal licences to captive users, however, came as disappointing to experts tracking the sector as well as companies related to it.

“I am disappointed that commercial mining was not allowed. It is a half-hearted attempt at reforming the energy sector,” former coal secretary PC Parakh said today, pointing to the fact that while the decision would enable auction of national resources in a transparent manner, allowing qualified mining companies — especially foreign ones who possess advanced technologies and know-how — would have led to proper utilization of resources and allowed scale-up of production.

“This is not a big change,” Ashok Khurana, director general, Association of Power Producers, said. “Coal India’s monopoly’s remains the same. And coal production remains with captive miners, many of which are not qualified miners.”

“Once we purchase the mines, it should be up to us as to what to do with it (keep it for end use or sell it commercially),” Shree Cement chief HM Bangur said. “If our unit is in Rajasthan [while the mine is somewhere else] it would not be cost-effective to transport coal.”

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