Coal mining ordinance: Turning crisis into an opportunity

Within two days of the Union Cabinet deciding to bring in an ordinance to handle the situation arising out of the Supreme Court order annulling captive mine allocations, the Coal Mines (Special Provisions) Ordinance was promulgated. While the ordinance was needed for transferring assets and liabilities of the prior allottees, what it will also do is introduce competition into the coal mining sector by doing away with the requirement of end-use projects.

Now, coal can be mined for commercial use and sold for profit. Once 130 of the mines listed in the first schedule are allotted to companies not into power, cement, steel or any other notified uses, coal will be freely available in the market. India doesn't have companies that simply mine and sell. But with this move, there is a likelihood of such companies coming up.

As there is no restriction on foreign investment into the coal sector, companies such as BHP Billiton and Rio Tinto can easily bid through their Indian subsidiaries.

In the first schedule of the ordinance, there are 204 mines, whose allocations were cancelled by the Supreme Court; the coal-bearing land acquired by previous allottees of these mines; and the mining infrastructure. The second schedule comprises those 42 mines mentioned in the first that are operational and for which the apex court has allowed a six-month grace period. The third schedule has the 32 mines that are in various stages of development. The government is empowered to include more mines to this list.

The Supreme Court's September 24 order had de-allocated captive mines given to private companies through two decades. "The (government) approach has been ad-hoc and casual," said the order. The reason for such a scathing observation was there weren't any set criteria for allocation of mines. Since mining deals with natural resources held by the government in public trust, discretion in allocation to private companies is viewed with suspicion. State government companies that were given mining rights under the government's dispensation route also faced de-allocation, as they gave mines to private companies for commercial mining, not allowed under the law earlier.

BACK TO COMMERCIAL MINING AFTER 42 YEARS

The Coal Mines (Special) Provisions Ordinance, promulgated on October 21, classifies mines into three schedules. It also changed the Coal Mines Nationalisation and Mines and Minerals (Development and Regulation) Acts to permit commercial mining

Nationalisation: How it happened

• Coking coal mines were nationalised in 1972, followed by nationalisation of non-coking coal mine in 1973. The Coal Mines Nationalisation (CMN) Act, enacted in 1976, terminated leases of private holders except those of iron and steel producers for their captive use

Captive mining

• In July 1992, a screening committee under the chairmanship of the coal secretary was set up to consider applications for captive mining. A total of 143 coal blocks of Coal India and Singareni Collieries, for which production plans weren’t in place, were offered. The Act was amended in June 1993 to include power as end use. In March 1996, cement and in July 2007, coal gasification and liquefaction too were notified as specified end uses
• Captive mining was opened up to 100 per cent FDI under the automatic route in Feb 2006.

Past attempts to permit commercial mining

• The Cabinet approved changes to the CMN Act in Feb 1997 but the Bill remained pending, after being introduced in the Rajya Sabha in April 2000

Competitive bidding

• The Mines and Minerals (Development and Regulation) Act was amended in Sept 2010 to make competitive bidding applicable to all minerals. In Feb 2012, the UPA govt notified auctioning of coal mines

De-allocation of captive mines

• On Aug 25, 2014, the Supreme Court held all coal block allocations as illegal. Leases of 204 mines cancelled on Sept 24

By ordering the takeover of mines and the land attached to those, the Supreme Court order has, in many ways, given a taste of nationalisation to the sector, the second time, after the Indira Gandhi government had nationalised it in the 70s. But by allowing commercial mining and saying auctioning of coal mines will happen according to the three schedules, the government has tried to calm investor' nerves. Though there are doubts on what kind of response auctioning of coal mines, introduced by the United Progressive Alliance government last year, will get, the National Democratic Alliance government has successfully managed to turn a crisis into an opportunity by permitting commercial mining.