India Opens Up Its Coal Sector To Private Firms, Ends Monopoly Of State Owned Company

The Indian coal mining sector has now been opened up for private companies ending the monopoly of the state-owned coal company Coal India Limited. The Indian government approved of the method for auctioning of coal mines and coal blocks and its sale for private firms earlier in the week.

The move was defined by the Indian government as the most ambitious reform for an industry that was nationalized way bac in 1973. About 70 per cent of energy generated in India is powered by coal and the attempt by power generating companies to secure a steady and long term supply of coal will  make this sector attractive for large global companies like Rio Tinto, BHP, Vedanta, Anglo American, Glencore and the Adani Group.

According to the approved auction system for coal mines and blocks, its basis will be the price for every ton of coal that would be provided to the state governments against the actual excavation of coal.   According to an official statement of the department, the government places no binding for the nature of usage or sale of the coal extracted from a 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 into the sector,” it added. It has been more than four decades that the coal mining industry in India has been monopolized by the public sector undertaking Coal India Limited which now digs out about 84 per cent of all coal produced in the country.

The government statement said that the auction method is completely focused on transparency and ease of doing business and attempts to make sure that the coal that is produced is put to use for the development of the nation.

The statement further states that since the states where the coal mines or blocks are situated would be given the entire revenue generated from the auction of coal mines, this system would provide additional revenues to the local state governments which then can be put to use for the development of the backward areas in the states. A large part of the benefits would be derived by the states in Eastern part of the country.

Kameswara Rao, partner and leader — energy, utilities and mining, PwC, said in a statement that “new owners of distressed assets will no longer worry about uncertain fuel supplies and can contract with commercial coal suppliers to revive their projects.” He added that “we will see industry consolidation, and rise of large vertically-integrated energy companies with interests in coal mining, power generation, transmission and distribution to retail supply.” Import prices of coal would also be kept under check because of cost reduction and increased volume of coal by commercial coal developing companies, he said. However, sufficient number of large coal blocks needs to be brought into for auctioning so that mining of coal can be profitable for firms as well, he added.

(Adapted from TheHindu.com)

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Categories: Economy & Finance, Regulations & Legal, Strategy, Uncategorized

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