Union Finance Minister Nirmala Sitharaman launched the 6th round of commercial coal mine auction of the Ministry of Coal.
Private sector participation was permitted until the early 1970s. The Indira Gandhi government announced the nationalisation of the coal blocks in two phases between 1971 and 1973.
The reforms announced in 2020 will effectively end state-owned Coal India Ltd (CIL)’s monopoly over mining and selling of coal.
In 2020, as a part of the announcements made under the Atma Nirbhar Bharat, the Central government allowed commercial mining in the coal sector.
What is commercial mining?
Commercial mining allows the private sector to mine coal commercially on a revenue-sharing model without placing any end-use restrictions.
Removing end-use restrictions marks the end of the captive mining regime.
Captive mining is the coal mined for a specific end-use by the mine owner, but not for open sale in the market.
A revenue sharing mechanism instead of the earlier fixed price per tonne will introduce competition, transparency and private sector participation in the market.
The private firms will have the option of either gasification of the coal or exporting it. They can also use it in their own end-use plants or sell them in the markets.
Further, with 100 per cent foreign direct investment allowed in the coal sector, global companies can also participate in the auctions.
The complete freedom to decide on sale, pricing, and captive utilisation is expected to attract many private sector firms to participate in the auction process.
The government expects these steps will generate employment and reduce India’s import bill.
First attempt by govt to open up the sector:
After the Supreme Court cancelled the coal block allocations made to the private sector in 2014, the central government had brought in the Coal Mines (Special provisions) Act of 2015 to return these coal blocks to the private sector through auctions.
But there had been end-use restrictions and the private sector was not allowed to trade into the market making it unattractive for the private sector.
Further in 2018, private sector firms were allowed to sell upto 25 per cent of the output in the market, but this also saw a lukewarm response from the private sector.