Burgeoning of the Coal Sector with the Coal Block Allocation (Amendment) Rules, 2020

Abstract

With the onset of a Pandemic headed by negative economic changes and an influx of counter-positive policies by the government, we analyse the latest Coal Block Allocation (Amendment) Rules, 2020. We look at the latest amendments through the vivid lens of Atma Nirbhar Bharat, the mineral demand of India and its industry, and coal’s contribution to India’s GDP and its varied patterns over the years. Highlighting the latest and major developments made in the coal sector as well as the key amendments to the rules, we put forth a conclusive analysis of all that the Coal Block Allocation affects, and all that affects it.

Introduction

India has faced a major economic set-back with the strike of an unprecedented pandemic, SARS-CoV-2 (‘COVID-19’). It is the need of the hour to tap India’s vast coal and mineral resources. Coal is considered as a vital mineral resource. India is a home to the fifth largest coal reserves in the world. It was realized that the nation had to strengthen its pillars by invigorating the cardinal stanchions being, providing direct support to farmers, rural sectors, workers, and migrant labors that have been deeply impacted by COVID-19. Boosting the infrastructure sector, strengthening the agricultural sector, which is popularly dubbed as the backbone of India’s economy; focusing on animal husbandry, beekeeping initiatives, fisheries and herbal cultivation, and lastly the business and health sector, In view of this, the Atma-Nirbhar Bharat Abhiyan (‘ANBA’) was launched. The term ‘atma-nirbhar’ has been used several times by the Hon’ble Prime Minister (‘Hon’ble PM’) in his multifarious speeches and means ‘self-reliant’. The clarion call was made by the Hon’ble PM to reduce India’s dependence on other nations to the lowest possible levels. The reforms can pose as a benefit to the economy by increasing global competitiveness. These measures will not bring the fruits of labour tout de suite, but will gradually help in generating jobs in the longer run, thereby boosting the crippled economy. This blog aims at understanding the ANBA launched to shape a self-sufficient state and reforms introduced in the coal sector.

Concept behind Atma-Nirbhar Bharat Abhiyan

The ANBA has five pillars to it, namely Economy, Infrastructure, System, Vibrant Demography, and Demand. While the five phases are:

Phase I: Businesses including MSMEs;
Phase-II: Poor, including migrants and farmers;
Phase-III: Agriculture;
Phase-IV: New Horizons of Growth and;
Phase-V: Government Reforms and Enablers

Phase IV that is called the ‘New Horizons of Growth’ focuses on the coal sector, infrastructure, mineral sector, defense production, civil aviation, boosting Private Public Partnerships (‘PPP’) for building airports, space activities, and tariff policy reforms. The said phase was introduced on 16 May 2020 [1] by the Union Finance Minister (‘Union FM’). These terms have generated immense popularity owing to the modernization and development. Some of the key takeaways from the ANBA are:

1. Introduction of a revenue sharing mechanism instead of regime of fixed rupee/tone;

2. Liberalization of entry norms where there would be no eligibility conditions but only upfront payment with a ceiling;

3. Coal beds that are currently under Coal India Limited (‘CIL’) will be auctioned to private parties for extraction of Coal Bed Methane (‘CBM’);

4. Development of infrastructure of “Rs. 50,000 Crores, focusing on evacuation of enhanced CIL’s target of 1 Billion Tons (‘BT’) of coal by 2023-24 with coal production from private blocks and shall include Rs. 18,000 Crores of investment in transfer of coals from mines to railway sidings on conveyor belts” [2]. This move has been made to reduce the impact on environment;

5. Coal gasification/ liquefaction will be incentivized through rebate in revenue share and;

6. Mining plans will be considered for ease of doing business.

The Mineral Backbone of India

For the first time since coal mining started in India, Hon’ble PM in 2020 has opened Indian coal mines for commercial mining. With the auctioning of over 41 mines [3] ( now revised to 38 mines [4]), there’s hope for employment, Foreign Direct Investment (‘FDI’) and civilization while keeping the environmental impacts to a minimum.

Let us take a look at the contributions of Coal to our Gross Domestic Product (‘GDP’)-

India’s GDP from mining has had constant variations, showing drastic changes from one quarter of the year to another. In January 2017, it hit a low of Rs. 750.02 Billion, and rocketed to Rs. 1092.09 Billion within a year. The mining contributions hit an all-time low of Rs. 689.78 Billion in the last quarter while the second quarter of this year fared well with a total of Rs. 1092.86 Billion before the onset of the country-wide lockdown, dropping to Rs. 712.09 Billion on the heels of the amendment [5]. At the end of December 2019, the coal GDP amounted to 3% of India’s total GDP [6] as the Government pushed for a more robust double digit growth.

While pushing for growth and allowing up to 100% FDI in India’s coal sector, the Government has also placed some restrictions to ensure maximum benefit for the country and employees while maintaining a corruption-free approach by tightening permits and licensing. The decision to allow FDI under the CMSP Act [7] will lead to intense competition once foreign companies start investing. While the CMSP Act allows for rigorous FDI, with the Government also allowing the auctioning of coal blocks, it’s a win for power companies. The companies can now attract larger global operators with a lower cost of capital to undertake end-to-end coal mining of their coal block.

Being the 3rd largest energy consumer in the world, India accounts for about 9.4% of the world’s reserves [8]. With the ever rising demands and poor quality of domestic produce, import of energy resources has jumped from 12% to 31% in ten years since 2007. Only CIL was allowed to mine and sell coal in the country along with some public and private companies that could only sell about 25% of their coal in the open market [9]. Deregulation of the said sector will allow private and foreign companies to mine and sell a larger portion in the open market. Further liberalizing the coal sector, the Ministry of Coal (‘MoC’) removed the law of end-use restriction, thereby allowing anyone to participate in the auctioning process. This move will hopefully help archive India’s projected demand of 1.2 BT by 2023 [10].

The study “Towards a Global Competitive Minerals and Mining Industry” [11] was released in New Delhi at the 2019 Mining Summit. While releasing the report, it was pointed out that the minerals and mining industry is core to India’s growth ambition of a USD 5 trillion economy [12]. Exploration, extraction and management of minerals need to be guided by national goals and perspectives. They should be integrated into the strategy of India’s economic development.

As India eyes global companies like Broken Hill Proprietary Co. Ltd. (‘BHP’), Peabody Energy and Glencore, amid the global FDI slowdown as trade- wars and pandemics rage, we hope for the Coal Block Allocation (Amendment) Rules, 2020 (‘Amendment’) [13] to bring relief and employment in a time where the nation-wide workforce struggles to get back to their feet.

Developments Witnessed in the Coal Sector

The Mineral Laws Act, 2020 [14] that MMDR Act [15] and the CMSP Act, seeks to remove restriction on end-use of coal and creates an eligibility for auction of coal and lignite blocks. Separate licenses will be provided for prospecting and mining of coal and lignite. The Bill permits the previous lessee to extend his approvals, licenses and clearances given in the previous lease to the new successful bidder for the next two years. Also, prior approval from the Central Government (‘CG’) for granting these licenses for coal and lignite, in certain cases, will not be required.

The ANBA has paved a new route which has been warmly welcomed by the nation, for commercial coal mining as launched by the Government of India (‘GoI’) on 18 June 2020 [16] hence breaking all curtailments imposed on the sector. Phase IV aims at achieving 1 BT of coal production by the year 2023-24. For this, recently a move has been made by the Ministry of Coal (‘MoC’) [17], where CIL will invest over Rs. 1.22 lakh Crores on 500 projects related to coal evacuation, infrastructure, project development, exploration, and clean coal technologies. The company would be investing around Rs. 14,200 Crores by the year 2023-2024 in two phases for its 49 First Mile Connectivity (‘FMC’) projects. In infrastructure, the term FMC always gets levitated [18]. It means that a main backbone network exists but there is a dearth of connectivity in various remote areas, it acts as a link between the former and end users. The technology used in FMC is diverse. It includes wireless technologies such as mobile cellular, satellite, Wi-Fi, LAN, and wired technologies like fiber optic, coaxial cable, and Asymmetric Digital Subscriber Line (‘ADSL’). The CIL has identified 15 Greenfield projects [19] that will be operated through a Mine Developer cum Operator (‘MDO’) in its mines. This is done to surge the coal output and reduce reliance on coal over the years. In view of the ANBA, a new reform was noticed in the coal sector. The Union Cabinet approved the Amendment which was meant to amend the Coal Blocks Allocation Rules, 2017 (‘Rules’) [20]. This decision was made in the backcloth of Union FM’s announcement.

Key take-aways from the Coal Block Allocation (Amendment) Rules, 2020

The Amendment in Rules was warmly welcomed by the nation as it proved to be a step towards a beginning of change and reforms; and opened doors to generate employment for thousands. Some of the highlights that have proven to be a game-changer, are as follows:

1. An Amendment has been made in the definitions of ‘ceiling price’, ‘floor price’, and ‘reserve price’ which shall now include a percentage in addition to the price;

2. When the coal block is specified for auction for one’s own consumption, as per the Amendment, the tender shall specify the capacity of end use of project that the bidder will be bidding;

3. Initially, the CG could specify the maximum number of coal blocks or amount of coal reserves or both that may be allocated to a company or corporation, its subsidiary or parent company, associate companies or group companies or its affiliate. However post the Amendment, both maximum number of coal blocks or amount of coal reserves shall not be allocated but will be based on a parameter that computes coal production or a combination;

4. As per the Rules, if the coal block is specified for the purpose of own consumption and a bidder having a coal linkage becomes the successful bidder, then the entitlement to receive coal pursuant to such coal linkage for the end-use plant on the basis of which it became a successful bidder may be reduced on such basis as may be specified by the CG. With the Amendment, the entitlement to receive coal pursuant to such coal linkage would be reduced in the manner as specified in the tender document by the CG;

5. As per the Amendment, an allotment document, as specified by the CG, to the successful allottee shall state the basis of reduction in the entitlement to receive coal pursuant to such coal linkage for the end-use plant;

6. The Amendment sees an insertion of ‘prospect license-cum-mining lease’ (‘PL cum ML’), which was peculiar to Section 11A of Mineral and Minerals (Development and Regulation) Act, 1957 (‘MMDR Act’) [21]. It was retrospectively amended with effect from January 10, 2010 by the Mineral Laws (Amendment) Act, 2020 [22] as it empowers the CG to grant PL cum ML for coal and lignite;

7. Successful allocatee has to provide an irrevocable and unconditional performance bank guarantee in its favor to ensure production of coal as per the mining plan, once a grant has been received under Rule of 9 of the Colliery Control Rules, 2004 [23] to the concerned State Government (‘SG’) for the amount equivalent to the performance bank guarantee submitted by it to the CG for ensuring the production of coal as per the mining plan and;

8. Earlier, coal linkage holders or successful allocatees could enter into agreements or arrangements with other successful allocatee(s) or coal linkage holders, for optimum utilization of coal block for the same purpose in the public interest and to achieve cost efficiencies. However, now the concept of coal linkage holders has been completely done away with.

An analysis of the Amendment

Private parties were allowed to participate in the coal sector until the 1970s [24]. Due to lack of interest in incorporating scientifically advanced methods and unhealthy mine practices, it was decided that the coal sector would be nationalized. The decision to open doors to commercial mining has emerged because there is a shortfall in domestic coal production to meet the rising demands.

The move made by the Union FM, MoC, and Hon’ble PM has opened up areas of growth in the coal sector. Initially, it was just the CIL and Singareni Collieries Company [25], both being Government controlled entities, that had major dominance in the coal sector. The Amendment has ensured an ease in doing business by paving the way to commercial coal mining and auctioning 38 coal mines [26], it has created a ray of hope in providing employment to thousands in the backward regions of the country and tribal areas. It will also pave the way for sustainable mining. India is home to non-coking coal whose import has shot up over the years. There has been an import of 180-190 million tonnes (MT) of coal as against 183 MT of coal in 2019 [27]. The dependency of non-coking coal is high as it is used in cement, fertilizer, glass, and ceramic, paper, chemical and brick manufacturing, and for other heating purposes. The decision of liberalization will help in meeting the rising domestic demand.

Depending on imports PM cum ML will now offer exploration of the unexplored and partially explored coal blocks for mining. Commercial coal mining will also create a sense of independence as it can cut import bills by Rs. 45,000 Crores [28] as there will be a sharp decline in the import of non-coking coal [29]. This move is meant to break free from one party dominating the industry as it will create a sense of competitiveness amongst parties to bid. It will have two benefits-firstly, it will destroy the monopolistic market in the coal sector. Secondly, there will be assurance that the highest bidder will invariably channelize more funds, advanced technology and use sophisticated means to excavate coal. Additionally, the SGs whose states are a storehouse of coal mines will generate more than Rs 20,000 crore per year in royalties [30]. It is essential for the SG and CG work hand-in-hand to achieve the goal.

Conclusion

A metamorphosis of any Act that embosoms the development in the environment, is always seen as a step towards betterment. This Amendment creates a sense of security amongst the coal rich states as the concept of bank guarantee has now been introduced. This change does not just impact one aspect or one sector but has a domino effect on other sectors reliant on coal such as electricity, steel and cement manufacturing. With private parties coming into play, there will be a sophistication in the coal sector. It is a golden opportunity for tribunal and rural areas as this change provides them employment. By channeling a route for commercial mining, dependency on import of coal from foreign nations will reduce vastly and the dream to achieve an ‘atma-nirbhar’ nation, would not be a distant dream. This was essential as the nation has been so badly impacted by COVID-19. There is a need to save the plummeting GDP. While this move seems promising, it could also act detrimental to forest covers, if coal mining is not carried out properly or is exploited by private parties. Thus, it is essential to practice commercial coal mining ethically, thereby striking a balance between safety of environment and maximum extraction of coal.

About the Authors

Sharmin Kapadia is a 5th-year law student at the Pravin Gandhi College of Law, Mumbai. She is also an Associate Editor at the Indian Journal of Projects, Infrastructure, and Energy Law (IJPIEL).

Adhya Sarna is a 2nd-year law student at the Amity Law School, Noida and is a Junior Editor at the Indian Journal of Projects, Infrastructure, and Energy Law (IJPIEL).

Editorial Team

Managing Editor: Naman Anand

Editor in Chief: Akanksha Goel

Senior Editor: Aakaansha Arya

Associate Editor: Sharmin Kapadia

Junior Editor: Adhya Sarna

Preferred Method of Citation

Sharmin Kapadia and Adhya Sarna “Burgeoning of the Coal Sector with the Coal Block Allocation (Amendment) Rules, 2020”

<https://ijpiel.com/index.php/2020/10/26/Burgeoning-of-the-Coal-Sector-with-the-Coal-Block-Allocation-(Amendment)-Rules- 2020>

Endnotes

[1]https://cdnbbsr.s3waas.gov.in/s3850af92f8d9903e7a4e0559a98ecc857/uploads/2020/05/2020051784.pdf

[2] Id.