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Now to deliver on FDI in commercial-coal-mining PDF Print E-mail
Friday, 30 August 2019 04:24
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Local firms can already commercially mine coal but did not get any mines; vital to see this doesn’t happen to FDI

 

Given how, in 2000 itself, the NDA had brought in a Bill to amend the coal nationalisation law to allow commercial mining, it was always a surprise that, even when the NDA came to power for the second time in 2014, it didn’t push for this. Indeed, even after the BJP announced a new policy on mines—after the Supreme Court cancelling coal mining licences forced it to come out with a new plan—it changed the law to allow for this, but it never took the necessary steps to ensure commercial mining of coal; while it auctioned several coal blocks, none of this was for commercial mining. Last year, The Indian Express reported on a note prepared by the coal ministry which said that since the unions of Coal India and its subsidiaries were against commercial mining, this “does not make it conducive at present for the auction of coal mines for the sale of coal”. In which case, while the government decision to allow 100% FDI in commercial mining—under the automatic route—has to be welcomed, it has to be seen whether the government is able to implement it; after all, if local firms have not been able to commercially mine coal despite being allowed to, it is not going to be easy for foreigners to be able to do this.

Allowing commercial mining of coal is critical since, with India importing over $26bn of coal, it is crucial to find ways to boost coal output; indeed, since imported coal costs a lot more, many users, like power plants, don’t even import coal as this prices them out of the market. The sharp increase in Australia’s reserves as compared to India’s is the best example of why India needs to get global firms of repute to explore for minerals; mineral imports comprise 55% of India’s overall import bill, and it is a high 25% even when oil is excluded. Interestingly, while PSUs have been given some of India’s best reserves, as a general rule, private firms have been a lot more successful, whether you compare Cairn with ONGC, Tata Steel or JSW with SAIL, NMDC with Sesa Goa, etc. A Niti Aayog strategy paper had pointed out that while India’s prospective geology is very similar to that of Western Australia, only 10% of it has been explored, as compared to 95% for Australia, and an even smaller 1.5% is being mined right now; according to Niti, even doubling the area being explored could create an additional 5 million jobs by 2022-23.

Apart from ensuring that enough mines—and of reasonable sizes—are put on auction for commercial mining, the government needs to reduce India’s levies; as compared to 7-15% in Australia and 0.5-4% in China, India’s royalty rates are 30-35% (the value of the cess varies according to the quality of coal), and corporate tax rates are also much higher. There is, then, the issue of forest and environmental clearances. Australian mining giant Rio Tinto found a lot more diamond-bearing formations in Madhya Pradesh in just a few years than PSUs had over decades, but had to finally leave when it wasn’t allowed to mine as the area was part of a tiger reserve. And, Vedanta’s sad history in Niyamgiri is well documented. So, while the government did well to allow 100% FDI in commercial coal mining as part of its measures to stimulate investment, delivering on this is going to be far tougher.

 

 

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