| Black diamond
New Delhi, May 8: The cabinet will discuss a proposed amendment to the Coal Mines (Nationalisation) Act, 1973, which will allow the government to auction blocks not mined by Coal India or its subsidiaries, to steel, cement and power companies through a competitive bidding process.
The note comes after about two years of hectic lobbying and counter-lobbying by power and steel majors, who have been eyeing around 64 coal blocks. While some steel majors and power utilities want the blocks to be auctioned, others prefer them to be awarded, as was in the case of SAIL and Tisco.
The cabinet note, which has been circulated among various ministries, mentions that auctioning would mean costly coal for private firms ' keen to snap up these leases ' but it would be a fairer system. The note is being pushed in the cabinet after a recent meeting on the core sector held by Prime Minister Manmohan Singh decided that there was a need to augment coal mining to bridge the widening demand-supply gap .
Both the Congress-led government and the previous BJP administration have been keen to open up the entire coal sector to private mining, but opposition from Left leaders, who wish to protect trade-union interests, have stemmed the move.
According to the cabinet note, since the bill 'is pending', the new amendment is being brought to 'provide competitive bidding' in allocating captive coal blocks to user-industries.
The note, piloted by the coal ministry, says competitive bidding will be based on technical, physical and financial parameters. To ensure 'informed-decision making' no block will be allocated 'unless it is explored in detail and an assessment of quality and quantity of extractable coal reserves made'. The cost of exploration would be recovered from the successful bidder.
The new bidding system would provide both financial stakes as well as penalties for not developing the coal mines.
The competition among bidders will be in terms of production sharing, which means those who offer the highest share to the state will get the mine.
Successful bidders will have to give a bank guarantee equal to three years of production share. If the mine is not developed in time, these guarantees would be encashed and leases cancelled.
The note also moots creation of a special fund from the proceeds of bidding, which could be used to develop the forest and tribal areas where the coal blocks are located. 'This will ensure co-operation from the local community and state governments,' the note said.
Economic strategists in the finance ministry and the Planning Commission are also supporting the reform measures since they fear that a huge demand-supply gap in the coal sector would hamper the country’s overall energy plans.
Currently, about 60 per cent of India’s energy requirement is met by coal. Coal-based energy accounts for around 70 per cent of the country’s power generation. The coal demand is expected to increase manifold in the next few years on account of burgeoning demand from power, steel and cement sectors.