Cabinet approves auctioning of coal blocks to captive private sector users

In a major policy change that may speed up investment activity, the Cabinet has approved two decisions in the energy sector. First on the controversial coal allocation mode to private sector users, the government will bring competitive auctioning in the allocation of coal blocks to the private sector captive users.

Second, in the case of shale gas exploration, the government will allow only public sector companies in the beginning. The private sector will be allowed to explore shale gas in the next stage.

The proposed auctioning of coal blocks is a major decision which may boost investment activity and revenue gain in for the government.  So far, the mining policy is that coal can’t be mined by private sector except for own use. Private sector firms who are engaged in power, cement and iron and steel, need coal to use in their plants. These firms in the recent period have secured coal blocks by filing application to the government. The process doesn’t involve any competitive price making for coal they are getting through the application as it is a critical input. Many firms have illegally secured hundreds of acres of coal lands of the Coal India Limited through influence. This was the base of the coal scam which was the biggest one in the country’s history.

The CAG has estimated that the government exchequer has lost nearly 1.86 lakh crore because of this uncompetitive coal allocation practice.

Because of the coal scam, allocation of coal for the private sector has stopped and many private sector projects remained non-starters, producing a major phase of investment jam.

The present decision of the Cabinet to introduce competitive bidding for coal allocation will bring more revenue to the government as well as giving momentum to the stalled projects. But still, since the participants in the auction are only captive users, which is limited in number, the price discovered will be much less than the international prices.

India has imported nearly 135 million tonnes of coal last year to meet 700 mn tones of domestic consumption, despite having the fifth largest coal reserve in the world estimated to last for 200 years at the present rate of consumption.

Shale gas policy

On shale gas policy, the Cabinet has opened a vent for the private sector. Shale gas exploration is limited to the public sector for the time being. In the near future, private sector will be allowed to explore shale gas.

Shale gas has emerged as a big discovery globally after the success story of the US and the emergence of sophisticated technologies to produce shale gas.  It is estimated that extraction cost will come down in future with the occurrence of improved technologies. India is estimated to have 60 trillion cubic feet of shale reserve, mostly in the difficult areas. Private sector companies like Reliance are partnering with MNCs like BP in the energy sector expecting entry into the shale gas exploration activity in the near future. 


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