KOLKATA (miningweekly.com) – India’s Coal Ministry is working on a proposal to negate the legal distinction between captive coal mines operated by user industries and commercial mining by private merchant miners.

The move to bring captive mines and commercial coal mining under the same legal framework has been prompted by experience showing that user industries like steel, cement and nonferrous metal refiners have either failed to bring coal blocks specifically allocated into operation or are producing the fuel at suboptimal levels.

Further, the opening up of commercial coal mining to private miners without any end-use restrictions and with free pricing regime has also failed to evoke any substantial interest among investors, prompting the Coal Ministry to put the auction of coal blocks for such commercial mining on the backburner.

The government holds auctions of coal blocks specifically for captive use by industries like steel, cement and aluminium. However, production from captive coal mines was recorded at 4.12-million tons in the April to June quarter, up a mere 2.5% over the corresponding previous period.

Captive coal mines notched up production of 25.12-million tons during 2018/19, recording growth of 55%, but this was still short of the aggregate potential of these mines to produce about 44-million tons a year.

Of the total 29 coal blocks allocated for captive mining to user industries – 13 through auction and 16 through preferential allotment – only 12 have been brought into production, with user industries claiming that issues like land acquisition, conflicts with mine developers and operators, and infrastructure lacunae have prevented them from operationalising the assets.

In view of the shortage of dry fuel faced across user industries, the Coal Ministry is mulling the option of forcing user industries already allocated coal blocks, but not operationalising them, to surrender the assets and even enforce a 10% penalty for not achieving performance parameters laid down in contracts.

Under a new scheme of things, the Coal Ministry is working on holding auctions for the allocation of single commercial mining rights, irrespective of end-use for specific sectors, offering mining leases of 50 years.

Earlier this year, the Coal Ministry liberalised rules, effectively partially blurring the distinction between captive coal mining and commercial mining. Under the liberalised rules put in effect in February, captive coal miners had been permitted free merchant sale of up to 25% of production from captive mines.

The government last year brought in legislative changes to end the Coal Nationalisation Act of 1973, which keeps coal mining the exclusive domain of government companies, paving the way for private coal mining. However, the auction of coal blocks exclusively for private investors has not evoked significant interest from standalone mining companies or international resource majors, forcing the Coal Ministry to abandon the planned auctions.

It is now supposed that bringing all coal mining under a single legal entity, in effect converting captive coal mining into commercial mining, will entice user industries with captive mines into standalone coal mining, thereby reserving part of the production for their own use, with the option of the free sale of the entire production based on economic viability.