India may open commercial coal mining to private sector, foreign firms

India is likely to open up commercial coal mining to the private sector, including foreign companies with subsidiaries or joint ventures incorporated in India, ending the 42-year monopoly of state-run Coal India Ltd (CIL) and opening up the world's fifth-largest coal reserves to global mining giants.

While the government did not specifically state its decision to open commercial coal mining to the private sector and foreign companies, an ordinance issued on Tuesday said any company incorporated in India may be allowed to mine coal for their own consumption or for third-party sale.

The government proposes to allocate coal blocks that are being reallocated under a Supreme Court order through public auctions and on the payment of fees up to Rs5 crore or as specified to:

  • A government company or corporation or a joint venture between companies or between the central government or the state government, or any other company incorporated in India; or
  • A company or a joint venture formed by two or more companies, which may carry on coal mining operations in India, in any form either for own consumption, sale or for any other purpose in accordance with the permit, prospecting licence or mining lease, as the case may be, and the state government shall grant such reconnaissance permit, prospecting licence or mining lease in respect of any area containing coal to such company as selected through auction by competitive bidding under this section.

Prime Minister Narendra Modi's decision to open the door for global giants like Rio Tinto will help end a perennial coal shortage in a country with the world's fifth-largest coal reserves.

As of now, only companies in the power, steel and cement sector in India can mine coal for their own consumption. Commercial mining is controlled by state-owned Coal India Ltd.

Foreign mining giants like BHP Billiton, Rio Tinto and US firm Peabody are expected to bid for mining blocks in India once the sector is opened up for foreign investment.

The move, however, will have to wait till the government completes the auction of 74 coalfields for the exclusive consumption of companies in the power, cement and steel sector, official sources said.

India's coal mining sector needs latest equipment and international expertise in order to raise production, and for Modi who promised to supply uninterrupted electricity it is key to raising coal production and power generation.