In recent years, significant changes have been made to the legislative framework concerning the coal mining sector. In this regard, it is relevant to note that the Hon’ble Supreme Court’s decision in Manohar Lal Sharma v. The Principal Secretary & Ors. whereby it cancelled allocations of 204 coal blocks made to private companies between 1993 and 2012 paved way for the introduction of the Coal Mines (Special Provisions) Act, 2015 (CMSPA). Needless to mention, the CMSPA is a landmark legislative reform and it introduced several innovative schemes including, auction of coal blocks in a fair, transparent, non-discriminatory and reasonable manner, and carrying on coal mining operations for sale.
Recently, the Prime Minister Narendra Modi formally announced the commencement of auction of coal blocks for sale of coal, and this marks a new beginning for the coal sector. The State’s exclusive position for sale of coal has been given up, and private players will get an opportunity to mine and sell coal.
This is a divestment of sorts, and is in line with the Government’s philosophy that “it’s not the government’s business to run a business.” The Government of India has divested a huge opportunity that it had with a handful of select Public Sector Undertakings namely Coal India Ltd (CIL), and its subsidiaries, and Singareni Collieries Company Limited, and this has been done with several incentives.
In order to ensure participation from the private sector, the Central government intends to ease eligibility norms, incentivise accelerated mining, remove end use restrictions and permit sale of coal for several coal blocks that it intends to auction in the near future. The Central government has shifted from its rupee per tonne model to a more commercially viable revenue sharing model, and this is truly an equitable measure. Needless to add, to complement the entire effort and ensure participation by foreign players, the Central government has also allowed 100% foreign direct investment under the automatic route for sale of coal and coal mining activities, including associated processing infrastructure.
To overcome the situation of inadequate exploration, the Central government has decided to allow private participation in exploration activities, and conduct auction of partially explored blocks. The private sector will not have to wait for the State to complete exploration and conduct auctions, and a lot of time and effort will be saved. Besides, there is an assurance for receiving a production license on an upfront basis, if exploration has established adequacy of commercially exploitable coal quantities. This should facilitate investments and M&A as there is end-to-end visibility regarding the business opportunity, and this will improve valuations and early stage collaborations.
The Central government intends to invest Rs 50,000 crore to develop infrastructure for the coal sector for assisting CIL and private players to evacuate coal. A part of this Rs 50,000 crore investment is intended towards mechanised transfer of coal (though conveyor belts) from mines to railway sidings.
In addition, incentives by way of rebates in revenue share are also in the pipeline for coal gasification/ liquefaction, in an effort to move India towards gas based economy. This will also leave a positive impact on the environment.
Getting through with a mining plan has always been a time consuming and cumbersome process, and owing to business situations and the regulatory framework, adherence to a mine plan has been a bigger issue. Shortening of the mining plan, and permitting automatic 40% increase in annual production is a welcome measure.
There will be added benefits because of competition in the coal sector by permitting sale of coal, and this will ultimately lead to efficient processes, innovation, availability of better quality of coal, competitive pricing and lesser government intervention.
The government has left no stone unturned, and is hopeful that the forthcoming auctions will be well received, and its reforms in terms of permitting sale of coal will enhance India’s self-reliance, increase exports, eliminate operational hurdles and ensure growth and prosperity of the energy sector. The government is also expecting that this move will create huge employment opportunities, reduce the import bill and provide the much-needed stimulus to steer India towards the USD 5 trillion economy and come out of the huge dent that has been caused to the Indian economy because of covid-19.
That said, it is necessary to be mindful that we are in an unpredictable and challenging situation, which is full of uncertainties. World over, economic growth, business sentiment and demand are at an all-time low, and this is likely to have a huge impact on potential bidders. National resources are being utilised towards relief measures introduced to deal with covid-19, and there is no certainty about what may become a priority over a business opportunity or situation. All this will go a long way in determining the participation in the forthcoming auctions.
Despite the government’s emphasis on ensuring ease of doing business, there is still a long way to go before the domestic and international business community feel assured about the government’s efforts in this direction. Several critical economic sectors have suffered because of regulatory delays, and well-conceived projects were stuck in multilayered approval processes, and ultimately they have ended up in a debt-trap. Historically, seeking environment and forest clearances, and land acquisitions, have been extremely chaotic and time consuming and license/ concession holders have had to wait endlessly.
Industry leaders have welcomed the initiative taken by the government, and have suggested that instead of being required to seek multiple approvals from several authorities, initiatives should be taken to inculcate a sense of self-discipline for license holders, and strict penalties should be introduced to prevent and curb violations. Besides, there is also a request for a simplified single window clearance system to ensure that projects are not held up for an uncertain period of time. These are fair commercial expectations from a business partner who expects to have shared business revenue.
The initiative taken by the government is phenomenal, and it is indeed a game changer. This will go a long way in making India energy self-sufficient i.e. ‘Aatmanirbhar’. However, in order to achieve intended objectives, extensive efforts should be taken to market this opportunity and ensure global participation despite the economic slump and covid-19 crisis, and stakeholder concerns regarding ease of business need to be addressed.
This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.
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