Welcome movement on coal allocations

There is belated action on the coal front. The coal ministry is reportedly finalising norms for auction next month of some 22 coal blocks, with estimated reserves of 2.7 billion tonnes, for captive mining by the private sector.

The continuing anachronism of public sector monopoly in coal mining does distort the policy regime, leading to delays, high costs, needless opacity and wholly avoidable controversy.

Opening up coal mining is the optimal solution. Pending that, proper auction design for captive mines is key. The objective must be to efficiently boost supply of coal, the nation’s main source of commercial energy, and to keep prices competitive taking into account our large proven reserves.

And pending the repeal of the Coal Mines (Nationalisation) Act, 1973, we need specific provisions to supply coal to more than one party, to make use of surplus coal and reap economies of scale. The ministry has proposed a licenser-licensee revenue-share model for the auctions, under a production-linked payment system.

It makes perfect sense. After all, upfront bidding would quite unnecessarily and artificially jack up scarcity value and lead to various other suboptimal outcomes.

However, actual mining would require umpteen clearances: approval of the mining plan, prior forest and environmental clearances, and infrastructure like rail linkage. Hence the need for initial spadework by multiple government agencies for each block put up for auction. We do need to step up coal output not just to meet future demand but merely to supply existing thermal plants.

Note that 54 coal blocks with reserves of 18 billion tonnes, with almost 16 BT earmarked for the power sector, are in a belated process of being allocated to various parties in the public and private sector. Transparency, please.