THE long-awaited move by the Indian government to open up the coal sector to private players may have brought joy to a few companies hoping to exploit the mineral to fuel the country’s growing energy needs, but overall last week’s decision is unlikely to bring about any dramatic changes.

The National Democratic Alliance (NDA) government had initiated reforms in the sector nearly three years ago by amending existing laws. Coal mines were nationalised in India way back in 1973, and for the past 45 years the industry was dominated by state-owned monopoly Coal India Ltd (CIL) and its subsidiaries.

In 2015, the government allowed private players to enter commercial coal mining, but the companies had to restrict supplies to specific sectors. The industry’s response has also been poor and the fourth round of auctions towards the end of 2016 saw lacklustre response from companies.

Just a little over a dozen mines of the 31 auctioned — with an end-use pre-condition — so far have started operations.

Sadly, the crawling pace of reforms in the sector are emerging at a time when coal itself has lost its charms and most major economies around the globe are rapidly replacing it with other sources. All leading economies, except India, have been reducing their coal consumption, opting for cleaner resources.

According to the International Energy Agency (IEA), in 2016 about 5.3 billion tonnes of coal equivalent were burnt, which was a nearly two per cent drop over the previous year’s figures and 4.2pc fall since 2014. It was also the fastest decline in coal consumption since the slowdown because of the global recession in the early 1990s.

Major consumers of coal including China, the US and Europe have seen a sharp fall in consumption as users switch over to cleaner fuel including renewables and gas. IEA expects the share of coal globally to reduce to 26pc by 2022 from the present 27pc. It also expects demand from India to stabilise in just about four years.

Even CIL in its recent ‘Coal Vision 2030’ warns of uncertainty in the energy markets thanks to the dramatic changes in technology, environmental and regulatory areas. Coal demand in India is estimated to go up from about 900 to 1,000 MTPA in 2020 to 1,300 to 1,900 MTPA a decade later.

Thus, there is limited scope for starting any new coal mines, the vision document says. “Although there is limited business case for new mines in the immediate future, say 2022–25 horizon, it may be advisable to monitor the growth in coal demand and decide on new mines accordingly,” says the report.

CIL currently has a near-monopoly over the coal supplied to the power sector — almost 80pc of India’s energy needs are met by it. CIL sells most of its produce to power plants, and steel and cement manufacturers are not a priority.

The commodity accounts for about 70pc of India’s electricity generated at thermal power plants. But often, shortage of supplies results in plants remaining idle.

Even if the new players venture into the sector, estimates are that it will take a year for the auctions to be completed, about three years for acquiring land for the mines and another year for setting up the mining infrastructure.

The new players will take at least five years to start production and another three years to raise it to full capacity — and to achieve economies of scale — at the mines.

THE government, however, continues to be bullish on the commodity. Piyush Goyal, the minister for coal and railways, believes that last week’s decision to commercialise coal mining will bring in expert firms with modern technology.

“Ultimately, the decision would help reduce our coal imports and increase the country’s self-sufficiency,” he says. “India has more than 300bn tonnes of coal and we should not be importing it.”

It is today the world’s second-largest coal importer and the third-largest producer (after China and the US).

The global coal industry’s response has been mixed. Anil Agarwal, the London-based founder and chairman of Vedanta Resources Plc, described it as “a path-breaking and bold reform” by the government. According to him, opening the sector for private players will bring in much-needed competition, improve efficiencies, stabilise irregularities and bring in foreign direct investments.

The government of course is doing everything to induce global coal majors. Susheel Kumar, the coal secretary, says auctions for the new mines would be on a transparent online platform. “There will no end-use and price restriction,” he says. “It would be up to the players to bring down prices in the open market.”

Most of the mines that will be offered to investors in the first phase are from backward states including Jharkhand, Chhattisgarh, Madhya Pradesh and Odisha.

While Ashok Khurana, the director-general of the Association of Power Producers, described it as a step in the right direction – especially in view of the emerging coal shortages – he says the outcome would depend on the conditions governing the auction.

“We hope the government will learn from the earlier auctions and make regulations conducive for competitive and sustainable price discovery,” he notes. “The objective of auction would need to shift from revenue maximisation to productivity and sustainability.”

With private players entering the fray, analysts expect non-regulated sectors including cement and steel to also benefit, as some of the major producers might also bid for the coal mines.

While the government claimed that last week’s move of opening up commercial coal mining for the private sector was “the most ambitious coal sector reforms since nationalisation in 1973,” many in the private sector, especially business lobbies, are all for it.

The Federation of Indian Chambers of Commerce and Industry (FICCI), an apex body for the industry, said it was “an enabling measure to concurrently reinforce the ‘Make in India’ initiative and attract foreign capital to boost productivity.

“The ripple effect of efficient coal mining will benefit the downstream sectors of iron and steel, cement and power in improving their market access and serving a larger cross-section of buyers as a vehicle for economic growth,” says a FICCI spokesperson.

Published in Dawn, The Business and Finance Weekly, February 26th, 2018