Opening coal mining augurs well

The government’s recent decision to open the coal sector for private commercial mining is a welcome step, marking a major policy change in an important area of economic activity. Only captive mining was allowed till now. That meant only companies which needed coal for their own use, like steel companies, were allowed to mine coal in mines allotted to them. The abuse of power and corruption this involved became clear from the coal scam which broke out during the UPA government’s rule. The need for a policy change was underlined by the scam, and the court decisions and the public debate that followed it. The government probably took the decision some time ago but has waited for the right environment to implement it. It may have wanted the shortage of coal in the market, resulting from the scam and subsequent events, to end before going ahead with the decision.

The government now plans to offer 10 mines for commercial mining. Four of them are in Orissa, four in Chhattisgarh and one each in Madhya Pradesh and Jharkhand. These will be auctioned to bidders, and state governments stand to earn high royalty from them. The dates for the auction will be decided in due course. Private commercial activity usually leads to increases in production and economies of scale. This has been seen in all other mining sectors. India has the third largest coal reserves in the world. But it is also the third largest importer of coal. Despite the promotion of other sources, coal will remain the main source of energy for many more years. Therefore, reforms in the sector are important for the economy.

One key result will be that the monopoly of Coal India Ltd (CIL) will be broken. Only CIL and a minor player, Singareni Collieries, were allowed mine coal till now. Lack of competition has made CIL’s operations very inefficient. The Competition Commission has called Coal India’s monopoly “very unfair’’. Indian coal is of lower quality than coal in other countries, as its ash content is high. But CIL India has not bothered to improve production or the quality of coal with better management and technological improvements, as it has a monopoly in the sector. The Coal Controller downgraded 177 mines this year on account of poor quality. Coal India will now have to raise standards and adopt better technologies as there will be increased competition in the coming years. The reforms will also hopefully lead to adoption of higher norms of safety and better protection of the environment.