MAC: Mines and Communities

Coal Mining Opened Up To Private Investment

Published by MAC on 2006-11-29

Coal mining opened up to private investment


29th November 2006

NEW DELHI: The government has opened the doors for private investment in the coal sector by allowing domestic and overseas mining companies to directly access captive coal blocks reserved for cement, steel and power sector players.

In all, 38 coal blocks with reserves of over 6 billion tonnes have been earmarked for allocation under the new dispensation that is expected to see interest from multinational biggies like BHP Billiton, Rio Tinto and domestic companies like Sesa Goa, Runta Mining, Essel Mining.

According to official sources, guidelines for allocation of captive coal blocks have been amended and under a new entry norm standalone mining companies (both domestic and overseas) have been permitted to apply for captive coal blocks. The only condition put is that these companies should have tied up supply contracts with one or more companies in the cement, steel and power sectors.

As per the changes in the guidelines, multinational companies could also bid for these captive blocks, if they have already set up an Indian arm or propose to do so within a specified period of time.

At present captive coal blocks are only allotted to companies in the power, cement and steel sectors and they in turn are free to form joint ventures for undertaking mining. The government has also allowed 100% FDI for captive mining in these sectors. That apart, entire coal mining is carried out by government companies.

Sources said that applications for the 38 coal blocks have already been invited. "We expect the first standalone mining company to begin work on its block in mid-2007," said sources.

Of the 38 coal blocks on offer, 15 blocks would be given to a company which have tied up contracts with power companies and 23 blocks to those having supply contracts with iron and steel companies. The change in guidelines for allocation of captive coal blocks follows favourable opinion in this regard from the law ministry which suggested that changes could be made without amending the Coal Mines (Nationalisation) Act, 1973.

Since 1993, less than 100 coal blocks have been allocated for captive users. However, 109 more coal blocks have been identified now for allocation under the captive route with total reserves of over 30 billion tonnes. More than 40 of these are Coal India blocks that have been dereserved in favour of captive users. With this, production of coal under captive use is expected to increase to about 200 million tonne annually from the present level of a mere 14 million tonnes.

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