The Cabinet Committee on Economic Affairs (CCEA) has approved a new methodology for auction of coal mines thereby further opening up the coal sector, allowing for pricing and marketing freedom for production from mines offered under this mechanism.
Under the new methodology, the auction will be an ascending forward auction whereby the bid parameter will be the price offer in Rs/tonne, which will be paid to the state government on the actual production of coal.
There will be no restriction on the sale or utilisation of coal from the coal mine.
This reform is expected to bring efficiency into the coal sector by moving from an era of monopoly to competition. It will increase competitiveness and allow the use of best possible technology in the sector.
The higher investment will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions.
Besides, it is expected to lead to energy security as 70 per cent of India's electricity is generated from thermal power plants. This reform will ensure assured coal supply, accountable allocation of coal and affordable coal leading to affordable power prices for consumers.
As the entire revenue from the auction of coal mines for sale of coal accrues to the coal bearing states, this methodology would incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants, including tribals. States in eastern part of the country will be especially benefited.
Opening up of commercial coal mining for private sector is the most ambitious coal sector reform since the nationalisation of this sector in 1973.
Besides, it will bring in higher investment and help create direct and indirect employment.
The new methodology gives the highest priority to transparency, ease of doing business and ensuring optimum use of natural resources for national development
It will also lead to energy security through assured coal supply, accountable allocation of coal and affordable coal.
The opening up of the coal sector for commercial mining was the next expected step after the government auctioned coal blocks with end-use and price restrictions a year or so after coming to power.
In September 2014, the Supreme Court had cancelled 204 coal mining leases allocated to the public sector and private companies since 1993 under the provisions of Coal Mines (Nationalisation) Act, 1973.
The government was left with little option but to make enabling provisions in the Coal Mines (Special Provisions) Act, 2015 for allocation of mines by way of auction and allotment to state-owned companies for the sale of coal.
In March 2017, the government said 31 coal mines were allocated through e-auction and 51 by way of allotment.
For the mines that were auctioned, coal production never reached the levels that the government had estimated. Eventually, companies started relinquishing coal blocks.