Forty-five years after the nationalisation of the coal-mining industry, the government last week chugged in reverse. It hung up a ‘for sale’ sign for its estimated 308.8 billion tonne coal reserves, reopening the sector to private players and including foreign entities this time. Until now, coal mining was a government preserve helping Coal India amass an unbeatable 80 per cent market share, while a tiny amount was allocated for private power and cement producers. But decades of licence raj led to a demand-supply mismatch and increased imports (22 per cent of total demand). It now appears the government felt that pain in its bones and is moving away from a monopoly to possibly, free markets.
About 70 per cent of our electricity generation is coal-fired; so the reform could be the first step towards full privatisation. The sector will see technology adoption, higher capital and improved energy efficiency. Importantly, it’ll benefit resourcerich states like Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Telangana and Maharashtra creating direct and indirect jobs. Besides, it can attract global giants, with BHP, Rio Tinto and Anglo American already expressing interest.
Lastly, supply will improve, making 1 billion tonne coal production by 2022 (currently 0.5 billion) realistic. But progress is never a straight road and to make commercial coal mining a success, we have to avoid tripping on the obvious landmines. First, coal blocks are commercially viable only when offered in minimum 40-50 million tonnes, not in bits and bobs.
Like spectrum, coal reserves represent a huge cash bonfire, but one should avoid a rushed fire sale. Lastly, the auction process shouldn’t end up as a winner’s curse, like in telecom, particularly, when the government already pierced its own foot when the Supreme Court cancelled 204 blocks in August 2014. Done right, we can then say the government has the chops to see when to sell the family silver and when to build an empire.