By Utpal Bhaskar

May 21, 2020 - As part of India’ strategy to revive economic activity, the Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a new auction process for awarding coal and lignite blocks on revenue sharing basis.

Earlier, blocks were awarded on a fixed payment per tonne basis which the government believed was impeding production.

The new strategy was articulated by India’s finance minister Nirmala Sitharaman on Saturday while announcing that India will further open up commercial coal mining with revenue share arrangement to boost domestic production.

The announcement was part of the fourth tranche of the ?21 trillion stimulus package to mitigate the economic fallout of the novel coronavirus pandemic.

“A paradigm shift in the approach from being oriented to maximum revenue from coal to making maximum coal available in the market at the earliest," the government said in a statement on Wednesday.

Despite having the world’s fourth largest coal reserves, India imports around 235 million tonnes (mt) of coal, of which around 135 mt valued at ?1,71,000 crore could have been met from domestic reserves, coal and mines.

“The bidders would be required to bid for a percentage share of revenue payable to the government. The floor price shall be 4% of the revenue share. Bids would be accepted in multiples of 0.5% of the revenue share till the percentage (%) of revenue share is up to 10% and thereafter bids would be accepted in multiples of 0.25% of the revenue share. There shall be no restriction on the sale and/or utilization of coal from the coal mine," the statement said.

New Delhi’s move comes at a time when the window for fossil fuels is rapidly closing, and the global energy landscape has been rapidly evolving, with fundamental changes in investment culture amid growing climate concerns.

“The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks," the statement said.

The CCEA also permitted commercial exploitation of coal bed methane (CBM) in the mining lease area that will help India’s natural gas production and reduce the demand-supply gap in the country. The CCEA incentivised early production by granting rebates in revenue share payments.

This may help boost coal production. India had earlier approved CBM exploration and production from areas allotted to state-run Coal India Ltd (CIL)—the world’s largest coal miner—and its subsidiaries in April 2018.

While making the announcements on Saturday, Sitharaman said there will be more reforms in the mineral sector wherein there will be no distinction between captive and non-captive mines that will allow transfer of mining leases.

The National Democratic Alliance government has been trying to raise India's coal output. In 2018, it had allowed commercial mining by private entities. In an attempt to attract investments in coal mining, the government had earlier approved the promulgation of Mineral Laws (Amendment) Ordinance 2020. It allowed coal mining by any company present in sectors other than steel and power, and did away with the captive end-use criteria.

The government plans invest ?50,000 crore to create transportation infrastructure for evacuating 1 billion tonnes of coal from CIL’s mines. The Centre had set a mining target of 1.5 billion tonnes of coal by 2020. Of this, one billion tonnes is to be from Coal India Ltd and 500 million tonnes from non-Coal India sources, in line with the government’s push to raise natural resources production to kickstart economic growth.