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PPP in coal is but one step forward

29 Oct 2013

We welcome the government's plan to have public private partnerships in coal mining. It is a sensible way to boost production of coal, drawing in private investment to supplement what state-owned monopoly Coal India Ltd can bring to the table. However, more reform is needed.

The estimated shortfall of 204.1 million tonnes - the total domestic demand for coal in 2012-13 stood at 772.84 million tonnes against supply of 568.7 million tonnes - is outrageous for a country that has one of the world's largest reserves of coal. We need to produce coal faster and cheaper to run our power plants without disruption and meet the growing demand for power. The economy needs electricity to grow. That cannot be held hostage to archaic public sector monopoly in coal.

The government should look beyond public private partnerships in coal and repeal the Coal Nationalisation Act 1973, and break up Coal India, setting free its subsidiaries to compete with one another and new professional miners from the private sector. All sectors in coal should be thrown open to private investment and competition: mining, beneficiation, trade and transportation. Specialised mining companies will have an incentive to bring in technology and economies of scale.

Once coal mining is thrown open, the policy of captive mining can be dispensed with. Pending legislative changes, CIL can be split into smaller entities that can compete amongst themselves.

The attraction in any PPP model is that part of the commercial risk is transferred to the private sector. In coal mining, bids will be invited for the private sector to partner with CIL. Ownership of the mine will continue with the public sector that will also own and sell the coal. So, the private sector partner will receive a mining charge, and not a revenue share.

PPP in coal mining was first announced in this year's Budget, and therefore the government should quickly finalise the model concession agreement. The government should also have clear and transparent rules in the allotment of mines to clean up the sector, and overhaul the regulatory framework.

Source: The Economic Times