India's Modi moves to reform problem-plagued coal industry

A worker unloads coal from a goods train at a railway yard in the northern Indian city of Chandigarh in this July 8, 2014, file photo. -- PHOTO: REUTERS
A worker unloads coal from a goods train at a railway yard in the northern Indian city of Chandigarh in this July 8, 2014, file photo. -- PHOTO: REUTERS

NEW DELHI (AFP) - India's government has pledged to open up the coal mining industry to private players in the energy-starved country as Prime Minister Narendra Modi steps up promised reforms to revive the ailing economy.

Modi's right-wing government approved an ordinance - or executive order - late Monday to allow auctions of coal mines to private companies for their own use, as well as permitting commercial mining at some point in the future.

The decree comes after the Supreme Court in September cancelled more than 200 permits for coal mines, after declaring the process of awarding them illegal, throwing the sector into turmoil.

"It was decided to issue an ordinance in the Cabinet," Finance Minister Arun Jaitley told reporters at a briefing on the issue.

"The entire coal sector was lying idle, it is an attempt to bring it to life once again," Jaitley said after the Cabinet meeting.

The ordinance takes initial steps towards ending a four-decade monopoly on mining and selling coal after the industry was nationalised in 1972 creating Coal India, one of the world's biggest miners.

The sector, plagued by inefficiencies, poor infrastructure and government red-tape, has long struggled to increase production to meet electricity needs of India's 1.25 billion population.

Modi stormed to victory in May elections on a pledge to revive the faltering economy, but some experts have been disappointed by a lack of early big-bang and much-needed reforms.

His government has introduced several initiatives in recent days and is likely to be spurred further after his party's thumping weekend victory at two state elections.

It announced Saturday it was freeing diesel prices from government control and increasing natural gas prices, in a bid to attract foreign investment and cut its subsidy bill.

India sits on some of the world's biggest coal reserves, yet its power stations are starved of the fuel, with some idle and others running dangerously low on supplies.

Coal provides nearly 60 percent of India's electricity generating needs, but the power sector relies heavily on imports of the fuel.

Blackouts are common across India, especially during peak summer months, amid surging demand including from a fast-rising middle class.

Economist D.K. Joshi welcomed the move, saying the power sector has long been operating at below capacity because of uncertainty over coal supplies.

"It (the government) is beginning to address the conditions holding back the economy and inefficiency of the sector was at the top of the heap," Joshi, chief economist at local ratings agency Crisil, told AFP.

"It's not a big-bang reform but it's a good first start." Coal India accounts for more than 80 percent of the country's total production but has missed its output targets in recent years.

Some private cement, power and steel companies are currently allowed to mine coal for their own use, but the ordinance includes a provision for firms to sell their coal at an unspecified time in the future.

Coal minister Piyush Goyal said legislation would need to amended to allow for such commercial mining, adding "this is only for the future".

"This process would not in any way impact the structure of Coal India," Goyal added Monday, according to the Press Trust of India news agency.

The ordinance's new auction system replaces the policy of allocating coal blocks based on recommendations from a panel of bureaucrats that the court deemed was faulty.

The ordinance takes immediate effect but must eventually be passed as a Bill by parliament or it will lapse.

Stocks for private firms already mining were trading higher on Tuesday, with Jindal Steel and Power surging 6.28 percent and Hindalco Industries up 3.08 percent.