India Rekindles Coal Sector, Allows Public-Private Partnerships

October 28, 2013 Posted by India Briefing Reading Time: 2 minutes

Oct. 28 – Following years of production deficits, the Indian government will now seek public-private partnerships (PPP) in the coal sector to boost domestic production, according to a draft agreement submitted this month by the Planning Commission.

The coal sector, which is largely dominated by the state-owned mining company Coal India, has experienced perennial production deficits and meets only three-quarters of the 773 million ton annual domestic demand.

By allowing PPPs, the Planning Commission hopes to rekindle the Indian energy sector through increased competition among coal producers.

“The only option before us is to increase domestic production and since Coal India is struggling to meet domestic requirement, it is best to involve private players, who will produce faster and cheaper coal,” said a senior official with the Planning Commission.

As a result of its energy deficit, the Indian government imported US$16 billion in coal reserves from Indonesia, South Africa, and Australia last fiscal year, contributing to the country’s concerns over its sizeable current account deficit (CAD).

“The government is very keen that domestic production improves. The policy is to maximize production of coal so that imports of coal are reduced. If they are reduced, [the] CAD will improve,” said B.K. Chaturvedi of the Planning Commission.

Estimates made in the 12th five-year plan expect to see coal demand grow by nearly 30 percent to 980 million tons by 2017. Under current conditions, the plan forecasts production to reach 795 million tons by that time, still leaving a large deficit that must be imported or met through growth in the sector, which the Commission hopes to achieve.

Under existing law, private enterprises may mine for coal under captive consumption contracts issued by the government, but the scheme’s restrictive measures have limited private participation in the program. Currently, the Coal Mines Act (1973) only allows captive consumption by private entities, so the bill must be amended before the government can solicit PPPs.

The new model will allow private enterprises to enter into a partnership with the Indian government, granting these enterprises access to the country’s mines. While control of the mines and coal will remain with the government, the private enterprises will be paid a mining charge based on the amount of coal retrieved, which will incentivize greater production.

The Planning Commission’s plans have been sent to the Ministry of Coal for final approval, which is expected to happen by December.

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