Coal sector gets nod for 100% FDI

Global companies such as BHP, Peabody Energy and Glencore can now own coal mines and carry out related operations in India, with the cabinet approving 100% foreign direct investment under the automatic route in mining, processing and sale.
Wednesday’s move to fully open up coal mining to foreign players could help get latest technologies, reduce fuel shortages that have crippled the power sector, and boost economic growth by attracting fresh investment. It follows an earlier decision allowing commercial coal mining by private operators, ending Coal India’s monopoly.

"There is a little slowing down of FDI worldwide so we have taken some significant decisions; 100% FDI for coal mining and all related processing activities will be allowed under the automatic route," commerce and railways minister Piyush Goyal said at a media briefing.

“The FDI has been allowed for coal mining activities including associated processing infrastructure subject to provisions of Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957 as amended from time to time, and other relevant acts on the subject,” a statement issued after a cabinet meeting said. Associated processing infrastructure would include washery and facilities for crushing and coal handling, it said.

Currently, 100% FDI under the automatic route is allowed for coal and lignite mining for captive consumption by power projects as well as iron and steel and cement units. FDI is also permitted for setting up processing plants like washeries subject to the condition that the company shall not do coal mining or sell the washed or sized coal in the open market. They must, under the existing rules, supply the processed coal to those who are supplying raw coal to them.

Coal India’s director-finance Sanjiv Soni said the decision would lead to increased competition. "Foreign direct investment will result in increased competition after a couple of years when foreign players start investing, as coal mining has a long gestation period,” Soni told ET. “Competition will result in additional supplies in the market and we feel prices should stabilise once these players start producing in India."

Kameswara Rao, leader-energy, utilities and mining at PricewaterhouseCoopers India, called it a welcome step. Power companies are really the beneficiaries of this, “as they can now attract larger global operators with lower cost of capital to undertake endto-end coal mining of their allocated blocks to reduce the fuel costs”, he added.

The Coal Mines Special Provision Act 2015 provides for opening up commercial coal mining to private and public entities. The government had laid out the guidelines for commercial coal mining, but has yet to auction coal blocks for the purpose.