Conservative bidding in phase 1; low revenue sharing welcomed

Coal Blocks Auction

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Coal Blocks Auction
Coal Blocks Auction

In News:

  • The first phase of auction of coal blocks for commercial use witnessed conservative bidding (bids were not very high) from industry players.

News Summary:
  • The first phase of auction of coal blocks for commercial use are happening this month (November, 2020).
  • 19 coal blocks were put up for auction (that lasted till November 9), with the successful bidders to be announced by November 11.
    • The bidders offer a revenue share to the government from the mining.
    • For example, Vedanta Resources, in its bid for Odisha’s Radhikapur West coal mine, offered 21 per cent revenue share for the mine.
  • However, the auctions witnessed conservative bidding from industry players, with the revenue share offered by bidders to the government lower than expected.
    • The revenue share offered by bidders for large coal blocks with annual peak rated capacity of over 3.0 million tonnes has ranged from 12.5 to 25 per cent.
Reasons for lesser interest:
  • Reasons for conservative bidding could be due to the type of blocks on offer and potential issues around land acquisitions and forest clearances, with a number of the mines put up for auction being in forested lands. 
  • Also, there was little interest from international players as they were moving towards reducing their coal investments.

Background:

  • The government has announced in June that coal blocks would be auctioned for commercial use, as part of the Aatmanirbhar Bharat package, with the aim to reduce coal import and increasing job opportunities in coal-bearing areas.
  • While first set of 38 coal blocks were offered for commercial mining, only 23 blocks received bids, with only 19 receiving two or more bids. These 19 blocks with interest or two or more parties were being put up for auction.

About Coal Mining:

  • Coal is the most important and abundant fossil fuel in India.
  • It accounts for 55% of the country’s energy need and India’s industrial heritage was built upon indigenous coal.
  • Commercial primary energy consumption in India has grown by about 700% in the last four decades.
  • The current per capita commercial primary energy consumption in India is about 350 kgoe/year which is well below that of developed countries.
  • Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise.
  • Indian coal offers a unique eco-friendly fuel source to domestic energy market for the next century and beyond.
  • The lignite reserves stand at a level around 36 billion tonnes, of which 90 % occur in the southern State of Tamil Nadu.
  • India has the world’s fourth-largest coal reserves, yet it imported 235 million tonnes of coal for Rs 1.71 lakh crore in FY’19.
 Constitutional provisions:
  • The Union List in the Seventh Schedule of the Constitution, however, rests the power of regulation and development of oilfields and mineral oil resources, mines and minerals with the Centre under entry 53 and 54.
  • Mines and mineral development are part of the State List as well but here they are subject to the powers conferred on the Centre.
  • Therefore, though both coal and petroleum exploration and production rights are given out by the Centre, it is the state governments which issue the mining leases.

About: Commercial Coal Mining Nationalisation of Coal:

  • India’s coal sector was nationalised in 1973. All coal mining in India came to be done by Coal India Limited (CIL).
  • Due to inefficiencies at CIL, though India has world’s fourth-largest coal reserves, India had to import hundreds of million of tonnes of coal.
Starting of efforts at commercial coal mining:
  • In February 2018, the government partially opened up commercial coal mining to private sector, by allowing private companies to mine coal for commercial use, ending the monopoly of state-owned CIL.
  • In October 2018, government allowed captive coal miners to sell 25% of their output in the open market.
  • Yet, despite allowing some commercial coal mining, the private sector mostly stayed away from auctions because:
    • Mines and Minerals (Development and Regulation) Act, 1957 provides that the central government can auction coal and lignite mining licences only to companies engaged in iron and steel, power and coal washing sectors.
    • The companies also needed prior experience of mining in India to bid for the blocks.
    • The Coal Mines Special Provisions (CMSP) Act, 2015 provides for end-use restrictions for the 204 coal blocks that were auctioned after the Supreme Court cancelled their allotment in 2014.
    • The end-use restriction led to “comparatively less” participation in the coal block auctions.

The Mineral Laws (Amendment) Act, 2020:

  • In January 2020, the union government promulgated the Mineral Laws (Amendment) Ordinance 2020, to amend the Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act) and Coal Mines Special Provisions (CMSP)Act 2015 (CMSP Act).
  • In March, it was replaced by the Mineral Laws (Amendment) Act, 2020.
  • Removal of restriction on end-use of coal:
    • Companies acquiring Schedule II and Schedule III coal mines will be allowed to carry on coal mining operation for own consumption, sale or for any other purposes, as may be specified by the central government.
  • Eligibility for auction of coal and lignite blocks:
    • Companies need not possess any prior coal mining experience in India in order to participate in the auction of coal and lignite blocks.
  • Composite license for prospecting and mining:
    • Separate licenses will not be needed for prospecting and mining of coal and lignite. A new composite license called prospecting license-cum-mining lease will allow both prospecting and mining activities.
  • Transfer of statutory clearances to new bidders:
    • An entity that successfully bids for an expired mining lease for specified minerals will also get the various approvals, licenses, and clearances given to the previous lessee for a period of two years.
  • Prior approval from the central government:
    • States will not require prior approval of the central government for granting reconnaissance permit, and prospecting licenses for coal and lignite, in certain cases where:
      • the allocation has been done by the central government
      • the mining block has been reserved to conserve a mineral

Also Read: In a mirror of economy, agricultural exports grow amid overall decline

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