India welcomes Coal Diggers

In today’s newsletter, we’ll talk about the liberalization of the coal mining industry in India and how it's making news this week.

The Story

India is a coal-rich country. It has the world’s fourth-largest reserves, and yet, low domestic production and increased demand forced it to spend Rs. 1.71 lakh crore on importing 235 million tonnes of coal last year.

Seems a bit absurd, doesn’t it? There are reasons, of course. To understand them better, let’s dive into the problems headfirst.

The first problem — Coal India. The government-owned company is a behemoth in its own right and it’s responsible for over 80% of the nation’s domestic production. However, it’s not been the most steadfast whilst meeting production targets. For instance, last September, heavy rains caused its largest mines to flood, and so it was unable to meet demand. However, the problem didn’t start last year. Coal India has been falling short of production targets for a few years now. Clearly, there are some larger issues at play here.

One of them is bureaucracy. State Governments in India have the power to acquire land for coal mining, but in most cases, they are inefficient and inactive. Obtaining environmental and forest clearance is also a very cumbersome task. Another problem is transportation. You mine coal in remote areas and then you’ll have to transport it over long distances to put it to good use. Now trains are the most economical way of transporting coal, but unfortunately, most mines are far removed from rail networks. So you have a double whammy here. There is also a shortage of transportation vehicles due to competing demand from other industries.

All in all, the coal production environment within our country is not exactly optimal. However, demand is expected to increase further with the addition of new thermal power plants and steel mills. So we need to do something. And naturally, the Government decided it was time to allow foreign investment in coal mining. This was last year. But the move didn’t stir up the investment scene as expected.

This is because state-level clearances are still complicated, and most foreign investors would rather not dive into that mess. Also, the thought of competing with Coal India was off-putting. The company is like the Government’s pampered child. Historically, they’ve been favoured by being granted mines where extraction is easier and cheaper, and the company doesn’t even have to pay for them. But private players have to participate in costly auctions (for mines), and then have to compete with Coal India’s low prices. So it’s unlikely their entrance will suddenly yield tons and tons of coal needed to meet India's demand needs.

Granted Coal India alone is expected to produce one billion tonnes by 2023–24, but that still might not be enough to meet our goals. So there is a greater need to involve private players in coal mining. And now the government is initiating another scheme. It's trying to open up the coal sector completely to all local and global firms. Earlier, mining licences were only offered to companies that used the coal themselves- iron and steel, power and coal washing sectors. Mining for commercial purposes was restricted. Companies also needed to have prior experience in mining in order to bid for coal mining units. But now, any company registered in India can do it. This move will also facilitate the auction of mining units which were cancelled due to the previous restrictions.

Yes, this move, in all likelihood will boost domestic demand, increase Government revenue, generate employment, and help India gain access to sophisticated mining technology used by private players. But the larger than life presence of Coal India will still deter new players from really thriving in the industry. Hell, even the Union Coal Minister Prahlad Joshi said that Coal India will continue to be India’s biggest coal supplier despite the new change in policy. But we suppose the government is now more willing to work together with private players. So that’s definitely a plus.

Unfortunately, Coal India’s unions are unhappy with the prospect of increased competition and are proclaiming that the move is “is against national interest”. And that’s not a plus. So, go figure.

Anyway, that’s it from us. You have a nice day now :)

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