Opening up mining

Removal of end-use restrictions is a major step forward

The Union Cabinet on Wednesday cleared an Ordinance that, in effect, opened up India’s mineral extraction sector to commercial mining companies of both local and foreign ownership. The Mineral Laws (Amendment) Ordinance 2020 amends both the Mines and Minerals (Development and Regulation) Act of 1957 and the Coal Mines (Special Provisions) Act of 2015. This sets in motion the process by which mining leases can be auctioned. Any company registered in India can bid and develop coal blocks, which means that previous restrictions — such as compulsory mining experience or a presence in specified sectors such as power or iron and steel — have been removed. In other words, there will be no end-use restrictions on the auctioned leases. This is a major step forward for commercial mining and for general efficiency in the sector, which has hitherto been dominated by the state.

The government has claimed that its changes to the coal-mining regimen in the country will ensure that the import bill is reduced. More than 200 coal blocks are eventually to be auctioned, according to the authorities, which they claim could eventually produce as much as 400 million tonnes a year. Even a partial movement towards that target would considerably reduce India’s import bill of about $15 billion. There is no reason for the country to be importing thermal coal in particular, of which it has ample reserves. High-quality coking coal, however, may have to continue to be imported. The iron ore sector, meanwhile, is also being affected. Leases for 46 mines that are currently operational are due to run out in a couple of months. This Ordinance will open up the market, a step which has long been hoped for. However, to attain desired results, the government will also have to work on other legal and administrative changes so that output moves efficiently.
 

NITI Aayog Chief Executive Officer Amitabh Kant has tweeted that it is “finally the end of coal nationalisation” in India. Currently, Coal India and Singareni Collieries account for more than 90 per cent of India’s coal production. Some of this will now be taken up by both India-based companies and multinationals. This will be a wake-up call for Coal India, which will have to improve efficiency in both extraction and delivery if it is to maintain market share. The coal minister has insisted that there will be no impact on Coal India, but that remains to be seen. Competition and efficiency in the sector are overdue. The government is also to be commended for ensuring that the legal framework is in place rather than relying on purely administrative shortcuts, as was the norm prior to the coal judgment of the Supreme Court some years ago. However, some caution is still warranted. The financial and “fit and proper” norms for bidders will have to be carefully designed. It is also essential that the government keeps in mind its other commitments, including on climate change. Further, the banking sector is still state-controlled and it should be careful to not over-lend to a sector that is globally facing a supply glut. A build-up of stranded and non-performing assets would be in nobody’s interests.