Making Mining Great Again: Understanding Modi’s Big Bet On Coal Privatisation

Moving to decisively end the 41-year-old monopoly of state-contolled Coal India Ltd, the Union Cabinet yesterday announced its decision to open up the coal sector to commercial mining by private entities. The move is also expected to incentivise domestic mining firms like Essel Mining, Sesa Goa and global giants like Rio Tinto, BHP Billiton and Vale to deploy state of the art technology to increase output from the India ’s huge coal reserves. The entry of global mining behemoths and private capital is set to provide a huge impetus to coal production.

Citing lack of investment, innovation, and interest from the private sector as the primary reasons for the nationalisation of coal blocks in 1973, the Congress today stands as a silent witness to Prime Minister Narendra Modi’s big bet on coal. It is time to make mining great again.

What The ‘Coal’ Is Going On

The Cabinet Committee on Economic Affairs has allowed participation of the private sector in commercial coal mining under the Coal Mines (Special Provisions) Act, 2015. This puts to rest the Coal Mines (Nationalisation) Act of 1973 and can be termed as one of the most ambitious reforms in the realm of coal sector in the last 50 years.

The Coal Mines (Special Provisions) Bill of 2015 was passed by Parliament under the National Democratic Alliance (NDA) government, 15 years after a similiar bill introduced under the leadership of then prime minister Atal Bihari Vajpayee was rejected in the Upper House . One can expect this move to have progressive implications across various sectors, especially when it comes to ease of doing business, investment in environment friendly technologies for mining, employment, labour rights, and transparency in coal block allotment.

The Current State of Coal Production in India

Indispensable to the economy of India and one of the major fuels of growth for the rural economy, coal forms the nucleus of the energy sector in India. With over 75 per cent of the coal produced in India invested in power generation, Coal India Limited (CIL) is bestowed with an important job of ensuring sufficient coal production to overcome deficit, thus reducing the dependence on coal imports.

Clearly, there is no dearth of coal reserves in India with Indian Bureau of Mines estimating gross geological coal resources at 306 billion tonnes, enough to meet the ever-increasing energy requirements of the nation for another century. Feasibility and accessibility still pose a major challenge when it comes to alternate sources of energy, especially renewables. Modi, on many occasions, has stressed on the importance of coal in driving India’s growth, especially for power generation in rural areas, given many of them are witnessing electrification for the first time.

A Brief History of Coal Mines Nationalisation

‘If you cannot control it, nationalise it’, was the belief that dictated major government reforms for most Congress governments. The nationalisation of coking coal mines was no different. Merely four years after the nationalisation of banks in 1969, the Indira Gandhi government came down strongly on the private sector in coal business, blaming them for being overly reliant on the government sector for investments, for not performing according to their potential, and squandering away assets in what the government believed was a futile exercise. Ignorant of the weaknesses of the existing public players in the coal business, the year 1973 marked the complete nationalisation of coal mines (coking coal mines were nationalised in 1971 and non-coking coal mines in 1973).

Plagued by the economic drain during British rule, India’s power generation in 1947 was confined to a few small hydro and high-grade coal-fired thermal power stations. In their pursuit to catch up with the industrial revolution, the government identified coal as the primary source. Alongside the low cost of generation, accessibility, feasibility, and largely unexplored and underused reserves made coal an obvious choice. The Organisation of Petroleum Exporting Countries’ oil embargo of the 1970s added to the woes of the government, thus leaving it with no choice but to have coal under its disposal, using it as a pretext to increase production, improve mining conditions, and plague innovation for almost five decades.

The Coming of CIL

Giving the coal industry the face of a public sector enterprise, the CIL was established in 1975 after the nationalisation process was completed in 1973. Even with the reduced role of private players in the business, subsequent amendments ensured some breathing space for them by allowing participation in certain sectors like power, iron, and steel, and coal gasification – an amalgamation destined to fail.

For the next 45 years, coal production was largely reserved for the CIL, with the enterprise accounting for over 80 per cent of the nation’s total coal production in 2012. Interestingly, the financial fate of this energy enterprise, unlike a few other public enterprises, has been quite strong, given its decision to outsource a majority of its operations. Quoting from the report of a leading daily, CIL had a cash and bank balance that amounted to Rs 52,390 crore after paying a dividend of Rs 18,317.5 crore to the government of India.

Coal Toll: Declining Production and Increasing Import Dependence

Even with the massive operating margins for the CIL, not all was well when it came to production and imports, given the production targets were not being met and the pivoting dependence on imports adding to the fiscal stress. According to the Ministry of Coal, the coal production in 2016 was 391.53 million tonnes against the targeted figure of 433.73 million tonnes. Even though the production registered a growth of 0.6 per cent against the previous year, it fell short of the required estimates.

Aided by other factors like the lack of underground mining technology, weak recovery rates, and growing stagnation in the mining procedures, the coal industry has been in need of privatisation for long now. The absence of any plan to harness coal reserves located beyond the threshold of 150m puts into perspective the imminent supply-demand gap that would have haunted the CIL.

With Prime Minister Modi facilitating rural India’s first tryst with electricity, coal quality would be important for sustained power generation. The lack of quality coal has led to an increasing dependence on imports, increasing by 600 per cent in 2011 from mere 10 million tonnes a decade ago for thermal grade coal alone. Given that the fate of rural India’s growth is directly linked to the quality of electricity supply they are helped with, it was about time the government looked beyond the conventional generators of coal. By opting for private sector involvement in coal mining, the government may have cloaked its vulnerabilities against import risks, geopolitical shocks, and a long-term fiscal stress. Better late than never, as they say.

Conquering History: NDA’s Past Attempts to Do the Unthinkable

In the future, when a chapter in history is dedicated to the inevitable comparison between Vajpayee and Modi, the latter would be credited for doing the unthinkable on coal reforms. Breaking the 45-year-old norm, the NDA government must take pride in achieving what its predecessors were not able to in 2000, when a similar bill was rejected by the Rajya Sabha.

Once rejected, the bill was sent to the Standing Committee on Energy which issued a report in 2001, endorsing the bill. A GoM (Group of Ministers) was set up to further the cause of coal privatisation and curate a policy that could fulfil the objectives of the proposed bill. Unfortunately, with the change in government in 2004, the GoM was done away with, and the idea was lost in one of the many pages of the ‘India Shining’ monologue. In 2009, the United Progressive Alliance (UPA) promised some initiatives along the same lines, but nothing significant was delivered.

The Future of Coal: Challenges, Opportunities, and Renewables

India has come a long way since 1947 when coal was viewed as the sole source of power generation and development. Today, the use of coal is evaluated across numerous parameters, one of the major ones being environmental.

The quality of coal in use has had a negative impact on our natural ecosystem. Infamous for using the worst-quality coal in the world, India must look beyond conventional practices of coal usage and integrate clean technology in its power plants. Compliance norms must not only be on paper alone but should find implementation in power generation. With private players set to take over in the future, understaffing, performance monitoring measures, and adherence to regulations can be managed with greater efficiency. The private groups must up the ante when it comes to organising and running plants, which are not major contributors to pollution, as often witnessed in Delhi, and also sustain the power supply for rural areas. To take a cue from the Prime Minister’s idea of ‘zero-defect, zero-effect’ in agriculture, the opportunity lies with the future players in coal business to run power plants which fuel rural and urban growth with consistent power supply without having an impact on the environment.

Touted as the mother of all economic reforms, this move by the Modi government will act as a catalyst to ensure natural resources are consumed for national, state, and local development in an effective manner. With time, as renewable sources of energy take over, the onus will be on the private companies to reduce their coal dependency, or even do away with it if or when feasible. State governments, which have otherwise been glum due to the goods and services tax (GST), have a reason to rejoice as the monetary returns will be paid to them.

India, as a nation, is at a tipping point, and energy generation, production, transportation, consumption, conservation, and innovation will have a critical role to play in defining the route it takes to become a leading player on the global stage. The ideals behind privatisation should not be the relentless pursuit or ruthless use of coal, but eliminating monopoly, stagnation, and ending the confinement that has gripped the energy sector for our country for almost five decades.

Prime Minister Modi, aided by able deputies, has set the nation up for something big in the energy sector. There has been no better time for private energy companies to deliver. Their time starts now.