India ends State monopoly over coal sector without much opposition. Time for Coal India to enter JVs?

Pratim Ranjan Bose

Indian coal sector was nationalized between 1971 and 1973. Private sector participation was encouraged in 1993, by broad-basing scope of captive mining. The State monopoly over commercial mining is finally withdrawn on Friday, March 20, 2015.  

As per the Coal Mines (Special Provisions) Act, that has been cleared by the Upper House (Council of States) of the Indian Parliament, on Friday evening, coal sector is now open to competition. 

Backroom negotiations

The Bill was promulgated as an Ordinance (a law passed without prior discussion in the Parliament) on October 21, 2014.

The immediate agenda before the government was to redistribute the captive coal blocks, de-allocated by the Supreme Court verdict on September 2014. The Modi government, however, went a step ahead and proposed denationalization of the coal sector   

But getting the bill ratified by the Parliament was easier said than done. The Prime Minister, Narendra Modi’s, BJP, that has a brute majority in the Lower House (Assembly of the People), is a minority in Upper House.

In the final analysis, Modi cleared the test, as he managed to break the Opposition unity. The ruling Samajwadi Party (SP) in Uttar Pradesh and the Trinamool Congress (TMC) in West Bengal, broke ranks with the Congress and the Left, to support the bill.  

Their sudden change of heart raised a few eyebrows. Both SP and TMC sport a pro-Muslim image. They describe BJP as a Hindu nationalist force and refuse to see eye-to-eye with Modi. Last but not the least, both have many skeletons to sweep under the carpet.  

The bottomline is: Indian coal sector is denationalized, without much resistance.

Expect actions soon

As of now, the Modi government promises that the provision to open coal sector is merely an enabling one. But, I doubt such claims. I strongly believe that the government is keen to create a case for private sector participation. And, it should come in doses.

The brunt may be borne by the State-owned Coal India Ltd (CIL), which ceases to be a national miner from March 20, 2015.

The concern is not limited to loss of State monopoly. With 40 per cent of the country’s identified coal reserves already earmarked for the captive sector and, over million tonne of fuel imported every year; CIL is willy-nilly thrown open to market risks.

This is evident in the company’s falling realization from open market (e-auction) sales that is linked to global coal prices; thinning profit margins and; knee-jerk reaction to customer grievances over quality.

Ideally, competition should help India. It helped the country in enhancing the oil and gas production. It should also help in extracting more coal by inviting new or better management practices.

Indeed there were some really good private miners operating in India before nationalization but their contribution was overshadowed by the not-so-reputable ones, who incidentally were majority in numbers.  

Some concerns

But the concern lies elsewhere. The opening up of the oil and gas exploration sector saw successive governments denying a level playing field to ONGC and using it as a sacrificial goat to help prepare the grounds for others. The aim was to let private sector grow at the cost of ONGC.

The Joint ventures in Ravva, Panna-Mukta-Tapti etc were shoved down the throat of the company. Private sector made riches, ONGC paid taxes on their behalf, until a courageous former chairman, Late Subir Raha, fought for equal terms.

That’s not all. In every NELP round, ONGC was asked to fill government coffers by bidding for assets that didn’t find takers. Good assets were taken back from the company under some pretext or the other. The company’s bid to emerge as an integrated oil company was scuttled because competitors were against it.

 Revisit the pages of the history and things may not look as bright and sunny as it is perceived. Indeed, a look at the previous UPA government’s (failed) attempt to thrust some private miners as Mine Developer and Operators (MDO), on CIL, at outrageously unequal terms may serve as reality check.

CIL to enter JVs? 

The history is murky. Yet, there is no way we can hold  Narendra Modi government responsible for a crime that they did not commit. The job on hand is to guess the future moves of the government.

And, I don’t think there will be an immediate attempt to distribute coal assets to private commercial miners. Because, such miners would ask for freedom of pricing the commodity that India can ill afford at this juncture.

I guess, armed with the legal sanction the Modi government may push CIL to enter joint ventures with private miners, in the immediate run. The nationalization made it impossible.

Theoretically, such an initiative should bring dividends to the nation. CIL has deep pockets and coal assets. Foreign miners can bring in better mining practices and technology, especially in underground mining.

But the catch will lie in the terms of reference of such JVs.

***

Tweet @pratimbose

(Disclaimer: Graphics are collected from the web. Will be removed in case of any objection)