Private hewers of coal — who were divested of 214 coal blocks last month after the Supreme Court declared a 20-year administrative process of allocations as arbitrary and seriously flawed — could soon be back in business. The Union cabinet on 20-10-2014 cleared a proposal to move an ordinance that would kickstart the process for an electronic auction of the coal blocks within the next three to four months.
It went a step further and held out the prospect for full private participation by ending existing end-use conditionalities that have restricted mining to producers of iron, steel, cement and electricity. However, no timeline has been set for this.
Coal mining was nationalised in 1973. Private iron and steel producers were allowed entry into the tightly regulated sector in 1993; the door was widened a few years later to allow private power and cement producers as well.
The ordinance must get the President's approval and it must be approved by Parliament within a few months. Otherwise, the order lapses.
Finance minister Arun Jaitley told reporters after the cabinet meeting that coal-bearing land would be taken back from private companies whose mining licences were cancelled by the Supreme Court.
Coal rights belong to the government and can be awarded, taken back or transferred as it pleases. However, the land rights have to be bought by firms or individuals.
Firms like Jindal Steel and Power, Hindalco and Tata Power will be allowed to participate in the auction as long as there are no criminal cases against them. However, they will not enjoy the right of first refusal on the mines that had been allocated to them earlier.
The states in eastern India — Bengal, Odisha and Jharkhand — will be among the biggest beneficiaries as the proceeds from the auctions will flow to them. The government termed it as "financial empowerment of these states".
The reserve price for the auction will be determined by an expert committee. Officials said merchant bankers would be appointed to help conduct the auctions.
The coal blocks will be allotted through a reverse auction, a process where the buyer must bid either for the percentage of coal or coal revenues that it intends to pass on to the state. The remaining coal can be used by the successful bidder for its end-use project. Only Indian companies incorporated in India will be allowed to bid for the captive mines.
The Indian Captive Coal Producers Association had recommended the system of reverse auctions to get out of the sticky situation that had been created by the Supreme Court's decision to quash the allotment of 214 coal blocks since 1993.
The government will compensate the original landholders out of the auction proceeds but not the firm that had bought the rights, officials said. Sources said successful bidders in the auction would be liable to pay the earlier allottees the cost of the land and the plant along with 12 per cent annual interest on the amount that was originally invested for purchasing the land and setting up the plant.
Jaitley said public sector units like NTPC as well as state-run firms like the West Bengal State Electricity Board would continue to be granted direct allocation of mines for captive use.
The Supreme Court had ruled that state government firms could not commercially mine coal under the provisions of the Coal Mining Nationalisation Act of 1973.
The minister said Coal India Ltd would continue to retain all the blocks currently in its possession and would be awarded fresh coal blocks in the future. "All the mining requirement of Coal India, present and future, will be adequately protected," he said.
It was not immediately clear whether the enabling provision for private coal mining would mean the entry of foreign mining giants like BHP, Rio Tinto, Anglo American and Vale of Brazil.
Once commercial mining is allowed, Coal India's virtual monopoly over mining and trading in coal will end, said analysts.
However, officials said the issue was politically sensitive and could raise the hackles of the coal miners' unions. The issue will be examined in detail later.