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INDEX OF CONTENTS
Chapter/Para
No.
Contents Page
Preliminary i ii
Abbreviations iii iv
Executive Summary v xvii
Chapter I Introduction 1 2
Chapter II Overview of the Coal Sector 3 6
2.1 History 3
2.2 Types and Uses of coal 3
2.3 Size of the Coal Market 3 42.3.1 Coal Reserves 3 4
2.3.2 Demand 4 5
2.3.3 Supply 5 6
2.3.4 Imports 6
Chapter III Regulatory Overview 7 26
3.1 3.3 Major legislations, Policies, Practices 7 8
3.4 Constitutional Scheme 8
3.5 Overview of the major legislation that have or are
likely to have an adverse effect on competition
8 28
3.5.1 Mines and Minerals (Development & Regulation) Act
1957, Amendment Act 2010, Amendment Bill 2011,
and Mineral Concession Rules 1960
8 11
3.5.2 Coal Mines (Nationalization) Act 1973, Notifications,
Amendment Bill 2000
11 13
3.5.3 The Coal-Bearing Areas (Acquisition and
Development) Act, 1957
13 14
3.5.4 Colliery Control Order 2000 and the Colliery Control
Rules 2004
14 15
3.5.5 Land Acquisition Act 1894 15 16
3.5.6 Environment related Legislation 16 19
3.5.7 Import Policy 20
3.5.8 New Coal Distribution Policy, 2007 20 21
3.5.9 Pricing 21 23
3.6 Competition Issues 23 28
Chapter IV Analysis & Recommendations 29 37
4.2 Inadequate data and lack of accessible data on
extractable coal reserves
29
4.3 Prohibition on private sector participation in Coal 30 31
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reconnaissance, prospecting or mining
4.4 Allotment of coal blocks, surface rights and mining
clearances
31 32
4.5 Changing environmental policies 32
4.6 Incumbency benefits enjoyed by CIL 32 34
4.7 Price Distortions 34 35
4.8 Impediments on Captive Mining 35 36
4.9 Bottlenecks for import of coal 36
4.10 Lack of adequate coordination between ministries
and agencies administering the different statutes
governing the coal sector at the Central and State
Level & Absence of a sectoral regulator
36 38
Chapter V Conclusions & Agenda for Competition Policy
Advocacy
39 44
Select Bibliography 45
Annexure A Other coal related legislation reviewed that does not
appear to have any adverse effect on competition
46 50
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PRELIMINARY
1.1 The Ministry of Corporate Affairs, Government of India, vide notification
F.No.5/15/2005-IGC/CS dated 8th June 2011, constituted a committee, namely the
Committee on National Competition Policy and Related Matters (C-NCP), for the
purposes of:
(a) Framing of a National Competition Policy (NCP)
(b) Strategy for competition advocacy with government and private sector
(c) Changes required in Competition Act for fine tuning it and
(d) Any other matter relation to competition issues
1.2 The Committee has submitted its draft report on Competition Policy and will shortly
be submitting a report on the Competition Advocacy Strategy and the proposed
changes in the Competition Act, 2002.
1.3 In order to develop a strategy for competition advocacy with the Government and the
private sector, the Committee seeks to have specific inputs and undertake evidence-
based advocacy, for which, a review of distortive provisions in policies, laws,
regulations, practices etc is required. The sector research studies aim to provide
illustrative examples of those laws, regulations and policies which either exert or have
the potential to exert anti-competitive effects on those sectors.
1.4 The studies are to be managed by the Indian Institute for Corporate Affairs. CUTSInstitute for Regulation and Competition (CIRC) is assisting IICA in this project through
specific activities.
1.5 Aequitas Legal (we, us, or our) has prepared this report for the Ministry of
Corporate Affairs at the request of CIRC. The terms of reference require a review of
legislation and policies in the coal sector in India in order to highlight those policies
and provision that affect competition and competitiveness in the sector, and
recommending changes that would promote and protect competition in the
concerned sector while balancing the social objectives sought to be achieved. The
timeline for this exercise was thirty days starting September 15, 2011.
1.6 Towards this end, we have reviewed the various legislations, Acts, Rules, Regulations,
Notifications, as well as Ministry guidelines, memorandums, and practices, that
operate on the coal sector in India, as well as reviewed relevant sector specific studies
and reports prepared by expert committees and research institutes.
1.7 Given the short time frame within which this Report was to be prepared, we have
concentrated on the major provisions and practices that have a material bearing on
the competitiveness in the coal sector, and a preliminary analysis of the issues and
recommendations based on the literature survey, have been provided. A detailedreview may be needed to further identify and analyse the effects of practices that
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impede, or may impede, competition in specific areas relating to the production,
distribution, and sale of coal.
1.8 This report has been prepared on the basis of the examination of documents publicly
available.
1.9 This report is strictly limited to the matters stated in it and does not extend, and is not
to be read as extending by implication, to any other matter. Without limiting the
generality of this statement and save as otherwise expressly indicated, this report
does not advise on, nor should it be construed as an assessment of conduct,
agreements, or practices by any of the entities referred to in the report. This report
should not be regarded as forming a legal opinion concerning any matter referred to
in it.
1.10 We would like to thank the Ministry of Corporate Affairs, the Indian Institute of
Corporate Affairs, and the CUTS Institute for Regulation and Competition for theopportunity to prepare this Report.
Adithya Krishna Chintapanti Abdullah Hussain
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ABBREVIATIONS
In this report certain frequently used words or expressions that may appear, have, for
convenience and clarity, been given the following meanings which apply generally
throughout this document unless the contrary is clearly stated:
Dates Dates are in the date/month/year format. Thus for example,09.03.2011 would mean 9
thMarch 2011.
CEPI Comprehensive Environment Pollution Index
Chapter refers to a Chapter in the various Parts of this Report
CIL Coal India Limited
CMPDIL Central Mine Planning & Design Institute Ltd.,
Contract Labour Act Contract Labour (Regulation and Abolition) Act, 1970
CPP Captive Power Plant
FSA Fuel Supply Agreement
FSTA Fuel Supply and Transport Agreement
FY Financial Year (beginning 1st April and ending 31st March)
GCV Gross Calorific Value
IEP Integrated Energy Policy Report of Expert Committee, August2006
INR or Rs. Indian Rupees
IPP Independent Power Producer
Kcal Kilo Calories
Kg Kilograms
Ltd. Limited
MCA Ministry of Corporate Affairs
MoC Ministry of Coal
MoEF Ministry of Environment and Forests
MoP Ministry of Power
MoST Ministry of Surface Transport
MT Million Tonnes
p.a. Per Annum
Pvt. Private
RBI Reserve Bank of India
ROC Registrar of Companies
Rs. or INR Indian Rupees
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SCCL Singareni Collieries Company Ltd.
Shankar Committee
Report
Report of the Expert Committee on Road Map for Coal Sector
Reforms Part I, December 2005 or Part II, October 2007
TERI The Energy and Resources Institute
TOR Terms of ReferenceU/s or u/s Under Section
UHV Useful Heat Value
w.e.f. with effect from
w.r.t. with respect to
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EXECUTIVE SUMMARY
Coal remains the primary source of fuel in India, at least for the next few decades,
contributing to over 50 per cent of Indias power supply generated from coal based power
plants. However, the industry is monopolized by a single producer due to the operation of
the Coal Mines Nationalization Act of 1973. Although a bill was introduced in Parliament in
2000 to amend the Act in order to allow private participants in the field on coal mining and
production, the bill has failed to garner the necessary support required to see it through.
Other major legislation affecting coal mining and production are the Mines and Minerals
(Development and Regulation) Act, land acquisition laws, and environment related
legislation. The policies and practices of the Ministry of Coal and Ministry of Power also
have a direct bearing on the production chain, priority of sales, price, etc. In the absence of
legislative amendments required to induct competition, the sector is vulnerable to the ill
effects in the absence of competition, viz. lack of quality technology and production
methods, lack of transparency in coal block allocations, falling production, price increases
etc. Within the last three years there have been three price increases notified by Coal India
Ltd. (the most recent on the 1st
of January 2012, resulting from a re-categorization of coal
on the GCV method) resulting in domestic prices virtually levelling with import prices.
Production on the other hand has remained largely stagnant compared to the last fiscal. The
upshot of these figures shows a projected gap of approximately 200 MT of coal by the end
of the 12th Five Year Plan.
The primary findings of this report along with the source legislation, policy, or practice, have
been tabulated and included in the following table. These include measures that have
recently been taken to promote competition in the sector whilst enhancing production as
well as those steps that may be taken to pending passage of the Coal Mines Nationalization
(Amendment) Bill of 2000:
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
1. The Coal Mines
(Nationalisation) Act,
1973
Ministry of Coal
Sec.3. Acquisition of rights of owners in
respect of coal mines
(3)On and from the commencement ofsection 3 of the Coal
Mines (Nationalisation) Amendment Act,
1976 (67 of 1976)-
(a) no person, other than--
(i) the Central Government or a
Government, company or a corporation
owned, managed or controlled by the
Central Government, or
(ii) a person to whom a sub-lease,
referred to in the proviso to clause (c),
has been granted by any suchGovernment, company or corporation,
or
(iii) a company engaged in-
(1) the production of iron and steel,
A1
Grants exclusive rights to a supplier
(Ministry of Coal / CIL / SCCL) to
provide goods or services (i.e.mining, production, and sale of
coal).
A3
Limits (statutorily) the number of
firms permitted to enter the
market.
B3
Only state-owned enterprises
operate in the market. They
receive benefits or preferential
treatment not available to other
firms which have the effect of
limiting competition in the coal
sector.
Pending the passing of the Coal
Mines (Nationalisation) Amendment
Bill, 2000, other avenues permitted
under existing legislation need to beresorted to so as to increase the
number of players in the sector. The
same include
Encourage mining by StateGovernment public sector
companies;
Increase captive user industries; Captive users must be allowed to
sell incidental coal surpluses;
Group captive mines must beallowed for small end users;
Those allotted captive blocksmust work the block within astipulated period of time failing
which the allotment either stands
cancelled or a penalty is imposed.
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
(2) generation of power,
(3) washing of coal obtained from a
mine, or
(4) such other end use as the CentralGovernment may, by notification, specify
(b) excepting the mining leases granted
before such commencement in favour of
the Government, company or
corporation, referred to in clause (a), and
any sub-
lease granted by any such Government,
company or corporation, all other mining
leases and sub-leases in force
immediately before such
commencement, shall, in so far as they
relate to the winning or mining of coal,
stand terminated;
(c) no lease for winning or mining coal
shall be granted in favour of any person
other than the Government, company or
corporation, referred to in clause (a):
The present legal regime reduces
the incentive of suppliers to
compete. Coal companies havebeen slow in adopting new
techniques or increasing the size of
equipment, the companies to
adopt modern technology to
increase productivity.
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
Provided that the Government, company
or corporation to whom a lease for
winning or mining coal has been granted
may grant a sub-lease to any person inany area on such terms and conditions as
may be specified in the instrument
granting the sub-lease, if the
Government, company or corporation is
satisfied that-
(i) the reserves of coal in the area are in
isolated small pockets or are not
sufficient for scientific and economical
development in a co-ordinated and
integrated manner, and
(ii) the coal produced by the sub-lessee
will not be required to be transported by
rail.
2. The Coal-Bearing
Areas (Acquisition
and Development)
Act, 1957
Ministry of Coal
Sec. 11. Power of Central Government to
direct vesting of land or rights in a
Government company.
(1)Notwithstanding anything contained
in section 10, the Central Government
may, if it is satisfied that a Government
B3
State-owned enterprise/s operate
in the market/s being assessed and
receive benefit/s and preferential
treatment not available to other
The said provision must be amended
to extend the vesting of the land
acquired in pursuance of the
enactment to private players as well.
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
thereof being the entire period for which
such a lease could have been granted by
the State Government under those rules;
and all the rights and liabilities of theCentral Government in relation to the
lease or the land covered by it shall, on
and from the date of such vesting, be
deemed to have become the rights and
liabilities of the Government company.
3. Mines and Minerals
Development and
Regulation Act, 1957.
Ministry of Mines
Sec. 11A. Procedure in Respect of Coal
and Lignite.
The Central Government may, for the
purpose of granting reconnaissance
permit, prospecting license or mining
lease in respect of an area containing
coal or lignite, select through auction bycompetitive bidding on such terms and
conditions as may be prescribed, a
company engaged in,-
(i) production of iron and steel;(ii) generation of power;
A1 , A4 , D2
Reinforces the exclusive rights
granted to government companies
to provide coal by restricting
private player participation in the
grant of reconnaissance permit,
prospecting license or mining leaseto sectors where captive mining is
allowed. Moreover, the section is
silent on the kind of coal blocks
that will be put up for auction and
the Government is empowered to
reserve coal blocks for government
This provision mirrors the captive
mining related provision of the Coal
Mines (Nationalisation) Act, 1973
[Sec 3.(a)(iii)]. It is opined that the
same would have to be amended
after the proposed Amendment Bill
of 2000 is given effect to by the
Union Parliament.
The amendment is a salutary step as
it seeks to grant coal blocks
impartially and transparently on the
basis of auctions. Further,
participating firms are likely to
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
(iii) washing of coal obtainedfrom a mine; or
(iv) such other end use as theCentral Government may, bynotification in the Official
Gazette, specify,
and the State Government shall grant
such reconnaissance permit,
prospecting license or mining lease in
respect of coal or lignite to such
company as selected through auction
by competitive bidding under this
Action :
Provided that the auction by
competitive bidding shall not be
applicable to an area containing coal
or lignite ,-
(a)where such area is considered forallocation to a Governmentcompany or a Corporation for
mining or such other specified
end use;
(b)where such area is considered forallocation to a company or
companies. This again results in CIL
and SCCL being allocated prime
coal blocks while private
companies have to participate inan auction. With respect to the
Mines and Minerals Bill 2011,
proposed Clause 4(2) exempts
government companies from the
requirement of obtaining a
reconnaissance or prospecting
licence. This grants an unfair
advantage to companies
competing in the market, i.e. CIL
through CMPDIL, and Singareni
Collieries Ltd.
develop the block won in the
auction as soon as possible and not
delay progress has been the case
with the many coal blocks allocatedto the private sector. However, the
provision may be amended to
include public sector companies in
the bidding process, i.e. remove the
power of the Government to reserve
coal blocks for allocation to CIL and
its subsidiaries. The pro-competitive
implementation of the provision
would also depend of the scheme of
auction, which is presently being
formulated by the Ministry.
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
5. Sectoral Issue Inadequate data and inaccessibility of
data on extractable coal reserves forprivate players.
A4
Limits the ability of some types ofsuppliers to provide a good or
service
D2
Firms in the market suffer from the
unequal application of laws or
regulations.
All the data related to coal retained
by CMPDIL should be kept in thepublic domain and only such data
which is relevant for the work of CIL
must be retained.
In those areas not covered by
Proven Reserves with Geological
Reports the private sector must be
invited participate in exploration
and mine development at their risk
partly shared with the government
on the lines of New Exploration
Licensing Policy (NELP) followed in
the oil sector.
At present detailed coal exploration
is done exclusively by CMPDIL which
is a subsidiary of CIL. CMPDIL must
be made an autonomous
organisation.
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
6. Sectoral Issue The various advantages granted to CIL
due to nationalization in 1973 and the
incumbency benefits enjoyed by CIL overthe last 35 odd years.
B3
State-owned enterprise(s)
receiving benefits and preferentialtreatment not available to other
firms which appear to have the
effect of limiting competition in the
relevant market.
Measures must be taken to ensure
that CIL does not exploit its
dominant position.
7. Sectoral Issue
Ministry of Coal
Non Working of Coal Blocks and Mining
Licenses by CIL does not invite
cancellation.
B3
State-owned enterprise(s)
receiving any benefit(s) or
preferential treatment not
available to other firms which
appear to have the effect of
limiting competition in the relevant
market.
Legal measures should be evolved to
cancel the licenses issued earlier if
the allottee has not taken adequate
steps to bring the allotted mines to
production or in setting up end use
units.
8. Sectoral Issue
Ministry of Coal
Price Distortions B1
Limits sellers ability to set the
prices for goods or services.
B5
CILs pricing decisions are influenced
by Government policies. Eg.
Differential pricing for defence,
fertilizers and power. (We are of the
view that these sectors may figure in
the social welfare related
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
The under-development of
transport and other infrastructure
appears reinforces the monopoly
status of the incumbent firms andreduces any potential competition.
exemptions enshrined in the
Competition Policy. To quote from
the Draft Policy , The National
Competition Policy is not dogmatic
and is mindful of appropriate
balance in matters having bearing
on social, environmental, security
and other strategic issues of national
importance; the only thing is that a
conscious view may have to be taken
but the concerned authorities in
balancing the competing
considerations. )
Freight rates of railways for
transport of coal need to be
rationalised. Alternative modes of
movement of coal be promoted forex. coastal shipping, river/canal
movement, movement of coal slurry
through pipeline etc.
9. Sectoral Issue Bottlenecks for import of coal. B5
The under-development of
Setting up of coastal power plants
based on imported coal must be
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No. Act / Rule /
Regulation / Policy /
Practice / Issue
&
Concerned Ministry
Text of the Provision (section/clause)
Or
Sectoral Practice / Feature
Checklist Code from Annexure 3 of
the TOR &
Analysis of the Anticompetitive
Effect or Market Distortion
Recommendation/s
rules adopted in the failed
experiment of the recent Go-No
Go and CEPI policies have added
to the uncertainty and have beenblamed for the fall in production
levels. While this is primarily an
issue concerning the removal of
bottlenecks it acts as a disincentive
for other potential suppliers to
enter and compete in the sector.
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CHAPTER I : INTRODUCTION
1.1 Coal is a combustible compact black or dark-brown carbonaceous sedimentary rock
formed from compaction of layers of partially decomposed vegetation and occurs in
stratified sedimentary deposits,1 primarily used as a solid fuel to produce electricity
and heat through combustion. The other major fuel resources are oil, natural gas,
and uranium.2 However coal is most widely spread and available fossil fuel around
the globe.
1.2 India has the fifth largest proved coal reserve in the world after the United States,
Russia, China, and Australia. Coal is the primary source of supply of commercial
energy in India and ranks third amongst the primary producers of coal. 3 78 per cent
of Chinas However, coal has the largest domestic reserve base and the largest share
of Indias energy production and consumption.4 As on June 2010, coal accounted for
82.4% of the total thermal generating capacity in India,5 representing approximately
52.4% of Indias total energy needs followed by oil and gas at 41.6 per cent.6
1.3 In India, most utilities were, and continue to be, dominated by public sector
companies. As pointed out by TERI7, in the electricity sector, government
companies/corporations account for 87% in generation (With NTPC accounting for
approximately 80%), 100% in transmission, 86% in distribution and retail supply and
93% in trading activity, while in the Oil & Gas sector the national oil companiestogether hold about 86% of Indias crude oil exploration & production, 77% of the
natural gas production, 74% of oil refining capacity, and 86% of the marketing
infrastructure.
1.4 The coal sector is no different. Coal India Limited (CIL) accounts for approximately
80-82% of the production while Singareni Collieries Company Limited (a joint venture
between the Central Government (49%) and the State of Andhra Pradesh (51%))
accounts for approximately 9.5-11.5% of Indias coal production in the 2010 fiscal.
1The Geological Survey of India, Coal.http://www.portal.gsi.gov.in/portal/page? _pageid=
127,721708&_dad=portal&_schema=PORTAL, Last accessed on 01.10.2011.2
Report of the Expert Committee on Road Map for Coal Sector Reforms, Part I, Ministry of Coal,
Government of India, December 2005, p.6 . http://www.coal.nic.in/expertreport.pdf, Last accessed on
03.10.2011.3
Coal India Limited, Draft Red Herring Prospectus, October 26, 2010, p. 54.
http://www.sebi.gov.in/dp/coaldrhp.pdf, Last Accessed on 05.10.2011.4
Supra n.2, p.6.5
Supra n.3.6
Supra n.3.7 Competition in Indias Energy Sector, Final Report, TERI, New Delhi, June 2007, p. xix,
http://www.cci.gov.in/images/media/completed/5teri_20080508111155.pdf, Last accessed on22.09.2011.
http://www.portal.gsi.gov.in/portal/page?%20_pageid=%20127,721708&_dad=portal&_schema=PORTALhttp://www.portal.gsi.gov.in/portal/page?%20_pageid=%20127,721708&_dad=portal&_schema=PORTALhttp://www.portal.gsi.gov.in/portal/page?%20_pageid=%20127,721708&_dad=portal&_schema=PORTALhttp://www.portal.gsi.gov.in/portal/page?%20_pageid=%20127,721708&_dad=portal&_schema=PORTALhttp://www.coal.nic.in/expertreport.pdfhttp://www.coal.nic.in/expertreport.pdfhttp://www.sebi.gov.in/dp/coaldrhp.pdfhttp://www.sebi.gov.in/dp/coaldrhp.pdfhttp://www.cci.gov.in/images/media/completed/5teri_20080508111155.pdfhttp://www.cci.gov.in/images/media/completed/5teri_20080508111155.pdfhttp://www.cci.gov.in/images/media/completed/5teri_20080508111155.pdfhttp://www.sebi.gov.in/dp/coaldrhp.pdfhttp://www.coal.nic.in/expertreport.pdfhttp://www.portal.gsi.gov.in/portal/page?%20_pageid=%20127,721708&_dad=portal&_schema=PORTALhttp://www.portal.gsi.gov.in/portal/page?%20_pageid=%20127,721708&_dad=portal&_schema=PORTAL -
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1.5 Since liberalization, the Government has been taking steps to increase competition
in various sectors. The Competition Act was introduced in 2002 and the Government
adopted a Working Report towards adoption of the National Competition Policy in
2007 which was incorporated in the 11th
Five Year Plan document with the approval
of the Cabinet and the National Development Council.
1.6 According to the draft National Competition Policy 2011, the term competition is
said to refer to a situation in a market place in which firms/entities or sellers
independently strive for the patronage of buyers in order to achieve a particular
business objective, such as profits, sales, market share, etc.8
1.7 Annexure III of the Draft provide an illustrative list of parameters against which an
existing or proposed legislation, policy, or practice can be measured in order to
assess whether it is likely to have an effect on competition. These are to examine
whether the legislation, existing to proposed, or policy, or practice has, inter alia, anyof the following effects:
Limits on the number or range of suppliers by granting exclusive rights,establishing a license, permit or authorisation process, significantly raising cost
of entry or exit, creating geographical or other barriers, etc.
Limits the ability of suppliers to competeby limiting a sellers ability to set theprices for goods or services, limiting freedom to advertise or market, setting
standards for product quality that provide an advantage to some suppliers over
others, significantly raising costs of production for some suppliers relative to
others (especially by treating incumbents differently from new entrants), etc.
Reduces the incentive of suppliers to compete by limiting the ability ofconsumers to decide from whom they purchase and so on.
1.8 The Report seeks to identify those legislations, policies, and practices that have the
above mentioned effect(s) in the coal sector in India. The Report is divided into five
Chapters. This, Chapter I provides an introduction to coal, its importance in Indias
energy sector, and also looks at the meaning of competition, and the parameters by
which competition in the sector may be analyzed. Chapter II provides a brief
overview of the coal sector in India, including a brief history, and the demand and
supply situation. Chapter III provides an overview of the regulatory frameworkgoverning the sector and identifies the provisions that affect competition, while
Chapter IV provides an analysis of the identified provisions and certain
recommendations on possible steps that could be taken to infuse and improve the
level of competition in the sector. Chapter V summarises the conclusions and the
possible agenda for competition policy advocacy.
8
The Draft National Competition Policy 2011, Ministry of Corporate Affairs, Para 2.1,http://www.mca.gov.in/Ministry/pdf/Draft_National_Competition_Policy.pdf, Last accessed on
01.10.2011.
http://www.mca.gov.in/Ministry/pdf/Draft_National_Competition_Policy.pdfhttp://www.mca.gov.in/Ministry/pdf/Draft_National_Competition_Policy.pdfhttp://www.mca.gov.in/Ministry/pdf/Draft_National_Competition_Policy.pdf -
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CHAPTER II : COAL SECTOR OVERVIEW
2.1 History
2.1.1 Prior to 1970, several hundred private participants were engaged in the mining and
production of coal in India. With the objective of achieving sustainable growth in the
coal sector and prevent wasteful mining, optimize resources, and improve mine
standards and working conditions, all activities related to coal, including exploration,
mining, production, distribution and sale, were nationalized by the Government of
India in the early 1970s. Subsequently, in the context of safety, conservation and
scientific development, the GoI acquired all coking coal mines on October 16, 1971
and nationalized them on May 1, 1972 vide Coking Coal Mines (Nationalization) Act
1972. The Coal Mines (Taking Over of Management) Act, 1973, extended the right of
the Government of India to take over the management of the coking and non-coking
coal mines in seven States including the coking coal mines taken over in 1971. This
was followed by the nationalisation of all these mines on May 1st
1973 with the
enactment of the Coal Mines (Nationalisation) Act, 1973.
2.1.2 In 1972 the central government transferred the 226 coking coal mines then existing to
Bharat Coking Coal Ltd., and a year later transferred the 711 non-coking coal mines
then existing to the Coal Mines Authority Ltd., which later became Coal India Ltd. 9
Since the passing of the Nationalization Act of 1973, only government companies are
allowed to engage in activities related to coal, save for an exemption in order to allowcaptive mining in certain sectors.
2.2 Types & Uses of coal
2.2.1 Coal is primarily of two types (a) coking coal, and (b) non-coking coal. Energy content
and sulphur content are the most important coal characteristics that to determine the
use of coal.10 Non-coking coal is typically low on sulphur content and low on calorific
value11and makes up the bulk of Indias coal reserves and production. Non-coking coal
is primarily used in the power sector whereas coking coal, which is higher on calorificvalue, is used in the steel industry.
2.3 Size of the Indian coal market
2.3.1 Coal Reserves
9Bharat Coking Coal Ltd. became, and continues to be, a subsidiary of Coal India Ltd. Coal India Limited,
http://www.coalindia.in.http://www.coalindia.in/Company.aspx?tab=5, Last accessed on 03.10.2011.10Supra n.3.
11Supra n.2.
http://www.coalindia.in/http://www.coalindia.in/Company.aspx?tab=5http://www.coalindia.in/Company.aspx?tab=5http://www.coalindia.in/Company.aspx?tab=5http://www.coalindia.in/Company.aspx?tab=5http://www.coalindia.in/ -
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Power Utilities 380.13 405.00 473.00
Captive Power 38.47 40.00 47.06
Cement 20.80 25.98 33.35
Steel DR 22.89 28.80 28.96
BRK & others 88.82 85.00 62.43
Sub-total Non-
coking
542.86 584.78 644.74
Total 582.25 624.78 713.24
It can be seen that the power sector (utilities and captive power) accounted for
71.89 % of the total demand in the country in 2009-2010. As on June 2010, coal
accounted for 82.4% of the total thermal generating capacity in India,14 representingapproximately 52.4% of Indias total energy needs.15
2.3.3 Supply (including imports)
India is the third largest coal producer in the world.16 In FY 2009-2010, 514.50 MT of
coal was produced. As mentioned above, since nationalization government
companies were statutorily conferred with the right to mine and produce coal. All
existing mines at the time were brought under the umbrella of one behemoth,
namely, Coal India Ltd. The situation remains the same today. CIL (along with itssubsidiaries) accounted for 415.88 MT representing over 80 per cent of all coal
produced in that fiscal while Singareni Collieries Ltd. accounted for 49.37 MT. Other
producers, i.e. captive miners in the power, iron and steel, and cement sectors,
produced 49.25 MT. However, demand continues to outstrip supply. The following
table shows the quantities produced in India along with the demand-supply gap:17
All figures in Million Tonnes
Source 2009-2010
(Actual)
2010-2011
(Revised
assessment)
2011-2012
(Revised as per
mid-termappraisal)
CIL 415.88 433.50 486.50
SCCL 49.37 52.50 47.00
Others 49.25 52.05 96.41
14Supra n.3.
15
Supra n.3.16Supra n.3.
17Supra n.12.
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Total 514.50 536.05# Actualnumbers stand at
532-533.08 MT
according to CMPDI
Annual Report 2010-
11 and Coal India
Annual Report 2010-
11.#
629.91
Demand 597.98# This figurediffers marginally
from the earlier
figure of 582.25
mentioned in the
Annual Report 2010-
2011 for the same
period.#
624.78 713.24
Gap 83.48 88.73 83.33
At first glance, the gap in demand appears to be static at slightly over 80 MT.
However, if compared to the actual figures for the FY 2008-2009, the gap has
increased from 59.98 MT to 83.48 MT in 2009-2010. The figures of 88.73 and 83.33
are estimates. Based on the actual production figures of 369.41 MT upto December
2010, it remains to be seen whether the production can come up to the estimate of
536.05 MT for the FY 2010-2011. Further, the gap of 83.33 MT for the FY 2011-2012
is based on estimated production figures of 96.41 MT by private participants as
against 52.05 MT estimated for the FY 2010-2011. The estimated gap of 83.33 MTcould therefore turn out to be much higher when actual figures are available.
According to the draft Approach Paper to the 12th
Five Year Plan (2012 2017)
prepared by the Planning Commission of India, the shortfall is expected to reach to
over 200 MT by 2017 even assuming the domestic production could be enhanced
substantially in that period.18
2.3.4 Imports
The shortfall in supply is expected to be met by imports. Imports accounted for69.94 MT in FY 2009-2010.19 Of this, non-coking coal accounted for 44.28 MT and
coking coal for 23.46 MT.20 As a percentage of the total coking coal demand, coking
coal imports are substantially higher due to that fact that India has small reserves of
coking coal which are generally of low quality and hence imports coking coal to meet
its requirement.21
18Faster, Sustainable and More Inclusive Growth, An Approach to the Twelfth Five Year Plan, Para 3.37, page
36, available at http://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdf, Last
accessed on 12.12.2011.19
Supra n.12, p.53.20Supra n.12.
21Supra n.3.
http://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdf -
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CHAPTER III : REGULATORY FRAMEWORK
3.1 We have reviewed the following major legislations related to mining, and to the coal
sector:22
(a) Mines Act 1952 along with the Mines Rules 1955, and the Coal Mines Regulations
1957;
(b) Mines and Minerals (Development & Regulation) Act 1957 along with the
Mineral Concession Rules, 1960, and the Mineral Conservation and Development
Rules, 1988, and the Mines and Minerals (Development & Regulation)Amendment Act 2010;
(c) Coal Mines (Nationalization) Act 1973, and the Coal Mines (Nationalization)
Amendment Bill 2000;
(d) Coal India (Regulation of Transfers and Validation) Act 2000;
(e) Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, along with
the Coal Mines Provident Fund Scheme 1948, the Coal Mines Deposit Linked
Insurance Scheme, 1976, and the Coal Mines Pension Scheme 1998;
(f) Coal Mines (Conservation and Development) Act 1974 along with the Coal Mines
Conservation and Development Rules 1975;(g) Coal Bearing Areas (Acquisition and Development) Act 1957 along with the Coal
Bearing Areas (Acquisition and Development) Rules 1957;
(h) Colliery Control Order 2000 (issued under the Essential Commodities Act 1955)
and the Colliery Control Rules 2004 (issued under the Mines & Minerals
(Development and Regulation) Act 1957);
(i) Offshore Areas Mineral (Development & Regulation) Act 2002 and the Offshore
Areas Mineral Concession Rules 2006
3.2 Other statutes that affect coal production and sales are:
(j) Land Acquisition Act 1894;
(k) Environment Protection Act 1986 and other environment related legislation;
22We have excluded certain Acts, Rules, or Regulations, as being either no longer relevant or prima facie
outside the scope of this project. Examples are the Coal Mines Pithead Bath Rules 1959, the Coal Mines
Advisory Board Rules 1973, the Mines (posting up of Abstracts) Rules 1954, the Mine Crche Rules 1966,
the Mines Rescue Rules 1985, the Mining Leases (Modification of Terms) Rules 1956, Mines Vocational
Training Rules 1966. We have also excluded the Coal Mines (Taking Over of Management Act) 1973 andthe Coking Coal Mines (Nationalization) Act 1972 as the Coal Mines (Nationalization) Act 1973 covers
both coking and non-coking coal mines (See Mahindra Nath v. State of Bihar, AIR 1980 SC 1308).
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(l) Foreign Direct Investment Policy;
(m) Import Policy.
3.3 In addition, the Ministry of Coal has issued certain notifications, orders,
memorandums, which govern production quantities, distribution, and have a bearing
on the price of coal as well. Primary amongst these are:
(o) the New Coal Distribution Policy 2007, and
(p) the Pricing Policy.
3.4 Constitution of India: Before embarking on a brief review of the legislation, it would
be useful to mention the constitutional provisions under which the coal related
legislation has been passed. Under the Constitutional scheme, the Centre isempowered by virtue of Article 246(1) of the Constitution and Entries 54 and 55 of
List I (Union List) of the Seventh Schedule to legislate on regulation of mines and
mineral development and regulation of labour and safety in mines and oilfields.
However, the State is also empowered by virtue of Article 246(3) and Entries 23 and
50 of List II (State List) of the Seventh Schedule to legislate on Regulation of mines
and mineral development subject to the provisions of List I with respect to regulation
and development under the control of the Union and taxes on mineral rights subject
to any limitations imposed by Parliament by law relating to mineral development. It
will be noted that both entries give due deference to the Unions overriding
authority. The Parliament has legislated extensively on the area of coal mining andproduction, including providing for the role of the States and the taxes and royalties
payable to the States.
3.5 Brief Overview
Based on a brief overview of the aforementioned legislations, we have extracted in
this chapter those legislations, policies, and practices that have or are likely to have
an adverse effect on competition in India. The brief overview and observations
relating to the legislations which were thought to have little or no effect oncompetition have been detailed in Annexure A.
3.5.1 (a) Mines and Minerals (Development & Regulation) Act 1957
3.5.1.1 Preamble: As per the preamble, the Act aims at regulation of mines and
development of minerals under the control of the Central Government. The Act is
umbrella legislation applicable to all the mining activity to the exclusion of minor
minerals which are administered by the State Government. It deals with
reconnaissance operations, grant of prospecting licenses and mining lease.
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3.5.1.2 Main Provisions: Coal and Lignite are mentioned in Part A of the First Schedule titled
Hydro Carbons Energy Minerals, which are administered by the Central
Government. The sections discussed below are both general and specific to the
items in First Schedule to the Act which includes Coal and Lignite.
3.5.1.3 Any State Government may, after prior consultation with the Central Government
can undertake reconnaissance, prospecting or mining operations with respect to coal
and lignite in any area within the State which is not already held under any
reconnaissance permit, prospecting license or mining lease23. The State Government
is not permitted to grant any prospecting license or mining lease for Coal and
Lignite, except with the previous approval of the Central Government24. Similarly no
prospecting license granted for Coal and Lignite can be renewed except with the
previous approval of the Central Government25. The permit holder of a
reconnaissance permit or a prospecting license is given a preferential right for
obtaining a prospecting license or mining lease, as the case may be, in respect of
that land over any other person26. No mining lease granted for Coal and Lignite canbe renewed except with the previous approval of the Central Government27. A
mining license lapses upon the expiry of two years from date of execution of lease in
the case of non-commencement of mining operations or two years from the date of
discontinuation of mining28. The holder of a mining lease is required to pay to the
State Government an annual dead rent at the specified rates29. There is a waiver of
royalty on the coal in respect of any coal consumed by a workman engaged in a
colliery provided that such consumption by the workman does not exceed one-third
of tonne per month30.
3.5.1.4 Moreover, the Act empowers the Central Government to make rules for regulatingthe grant of reconnaissance permits, prospecting licenses and mining leases with
respect to Coal and Lignite31. The Central Government is further empowered to
make rules for grant of prospecting licenses or mining leases in respect of territorial
waters or continental shelf of India32. The Central Government is also empowered to
undertake reconnaissance, prospecting or mining operations in certain areas33, and
to take all steps as may be necessary for the conservation and systematic
development of minerals in India and for protection of environment34. To achieve
this, the Central Government can authorise the Geological Survey of India to
investigate as directed.35 These powers can be delegated to other authorities as
23 Section 4 (3) of the Mines and Minerals (Development and Regulation) Act, 195724
Proviso to Section 5 (1) of the Mines and Minerals (Development and Regulation) Act, 1957.25
Second Proviso to Section 7 of the Mines and Minerals (Development and Regulation) Act, 1957.26
Section 11 (1) of the Mines and Minerals (Development and Regulation) Act, 1957.27
Section 8 (4) of the Mines and Minerals (Development and Regulation) Act, 1957.28
Section 4A (4) of the Mines and Minerals (Development and Regulation) Act, 1957.29
Section 9A of the Mines and Minerals (Development and Regulation) Act, 1957.30
Section 9 (2A) of the Mines and Minerals (Development and Regulation) Act, 1957.31
Section 13 (1) of the Mines and Minerals (Development and Regulation) Act, 1957.32
Section 13A of the Mines and Minerals (Development and Regulation) Act, 1957.33
Section 17 of of the Mines and Minerals (Development and Regulation) Act, 1957.34Section 18 of the Mines and Minerals (Development and Regulation) Act, 1957.
35Section 18A of the Mines and Minerals (Development and Regulation) Act, 1957.
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well.36
3.5.1.5 Mines and Minerals (Development & Regulation) Amendment Act 2010: The Act was
amended in 2010 to make a special provision for granting reconnaissance permit,
prospecting license or mining lease for companies engaged in captive mining of coal
or lignite, though auction and competitive bidding37. These include companies
engaged in production of iron and steel, generation of power, washing of coal
obtained from a mine and such other end use that the government may by
notification in the official gazette specify. The proviso to the section nevertheless
makes it clear that competitive bidding shall not be applicable to an area containing
coal or lignite, where such area is considered for allocation to a Government
Company or Corporation for mining or such other specified end use or where such
area is considered for allocation to a company or corporation that has been awarded
a power project on the basis of competitive bids. The significant aspect of the 2010
amendment is that it allows for participation of foreign companies in the said
competitive bidding process.
3.5.1.6 Mineral Concession Rules, 1960: The Mineral Concession Rules, inter alia, specify the
form, manner, and the person to whom the applications for licenses are to be made,
the authority by which reconnaissance permits38, prospecting licenses or mining
leases in respect of land in which the minerals vest in the Government may be
granted39; the conditions to be contained in such reconnaissance, prospecting and
mining licences40; preparation of mining plans by recognized persons41 the procedure
in the case such lands vest with a private person42; the requirement of previous
approval of the Central Government by the State Government43; period for disposal
of applications44
; royalties payable45
; requirement to submit all geophysical data tothe Geological Survey of India and the Department of Atomic Energy46.
3.5.1.7 Mineral Conservation and Development Rules, 1988: The Rules, inter-alia, specify the
requirement for scheme of reconnaissance and prospecting operations47, approval of
mining plans48 to be prepared by qualified persons, authority to direct beneficiation
studies49, notice of opening, temporary discontinuance, abandonment, re-opening50,
36Section 26 of the Mines and Minerals (Development and Regulation) Act, 1957.
37Section 11A of the Mines and Minerals (Development and Regulation) Act, 1957.
38
Rules 4-7 of the Mineral Concession Rules 196039Rules 8-21 of the Mineral Concession Rules 1960 regarding prospecting licence and Rules 22 40 regarding
mining leases.40
Rules 7, 14, and 27 respectively of the Mineral Concession Rules 1960.41
Rule 22B of the Mineral Concession Rules 196042
Rules 41-55 of the Mineral Concession Rules 196043
Rule 63 of the Mineral Concession Rules 196044
Rule 63A of the Mineral Concession Rules 196045
Rules 64B-64D of the Mineral Concession Rules 196046
Rule 66 of the Mineral Concession Rules 196047
Rules 3 and 4 of the Mineral Conservation and Development Rules, 198848
Rules 9-13 of the Mineral Conservation and Development Rules, 1988 and Rules 23A 23F for closure plans,
and Rules 27-30 regarding contents and types of plans and section.49Rule 20 of the Mineral Conservation and Development Rules, 1988
50Rules 22, 23, 24 of the Mineral Conservation and Development Rules, 1988
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requirement to employ geologists and mining engineers, their qualifications and
duties51, returns to be filed, and penalties for violations. The Rules also mandate that
all research reports in geology and mining must be shares with the authorities.52
3.5.1.8 Mines and Minerals (Development & Regulation) Bill 2011: On 30.09.2011, the Union
Cabinet approved the draft Bill of the new law which seeks to consolidate and
replace the existing Mines and Minerals Act 1957. The primary additions in the
proposed legislation is the sharing of 26% of the net profit of coal mining companies
and 100% of royalty for other mineral mining companies with the people displaced
due to such mining activities53. The Bill also proposed to establish a National Mineral
Fund54, establish national and state mining regulatory authorities55 and tribunals at
state and central levels56. Clause 4 of the Bill states that no person shall undertake
reconnaissance, prospecting, exploration, or mining, in respect of any mineral
without obtaining an appropriate licence or lease. Sub-clause (2) of Clause 4
however, exempts the Geological Survey of India, Mineral Exploration Corporation
Limited, Singareni Collieries Limited, Central Mine Planning and Design InstituteLimited, the Directorate of Mining and Geology of any State Government, and such
other government agencies as may be notified by the Central Government, from the
need to obtain a licence in respect of reconnaissance or prospecting operations.
3.5.1.9 Observations: As discussed earlier, the Act is an umbrella legislation dealing with
minerals administered by the Central Government and the State Government. Coal
and Lignite are minerals administered by the Central Government. Under Section
11A of the Act incorporated in 2010, the Government has introduced competitive
bidding for allocation of coal blocks. However, this is limited to the notified
industries of steel, power, and washeries, for captive consumption. Moreover, thesection is silent on the kind of coal blocks that will be put up for auction and the
Government is empowered to reserve coal blocks for government companies. This
again results in CIL and SCCL being allocated prime coal blocks while private
companies have to participate in an auction. With respect to the Mines and Minerals
Bill 2011, proposed Clause 4(2) exempts government companies from the
requirement of obtaining a reconnaissance or prospecting licence. This grants an
unfair advantage to companies competing in the market, i.e. CIL through CMPDIL,
and Singareni Collieries Ltd.
3.5.2 (b) Coal Mines (Nationalization) Act 1973
3.5.2.1 Preamble: The preamble to the act states that it is a legislation to provide for the
acquisition and transfer of the right, title and interest of the owners in respect to the
51Rules 42-44 of the Mineral Conservation and Development Rules, 1988
52Rule 61 of the Mineral Conservation and Development Rules, 1988
53Clause 43 of the draft Mines and Minerals (Development & Regulation) Bill 2011
54
Clause 50 of the draft Mines and Minerals (Development & Regulation) Bill 201155Clause 58 and 70 of the draft Mines and Minerals (Development & Regulation) Bill 2011
56Clause 75 and 89 of the draft Mines and Minerals (Development & Regulation) Bill 2011
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coal mines specified in the schedule with a view to re-organizing, and re-constructing
such coal mines so as to ensure rational coordinated and scientific development and
utilization of coal resources consistent with the growing requirements of the country,
in order that the ownership and control of such resources are vested in the State and
thereby so distributed as best to subserve the common good, and for matters
connected therewith or incidental thereto.
3.5.2.2 Main Provisions: As stated in the Preamble to the Act, the purpose of the legislation
was to acquire the existing mines at the time and the provisions relate to taking over
the management, accounts, and compensating the owners of the mines. The key
provision of the Act which is still relevant today is Section 3(3)(a) of the Act. The said
provision prohibits any person other than
(a) the central government, government company, or corporation,
(b) a sub-lessee of the government, or
(c) a company engaged in (i) production of iron and steel, (ii) generation of power,
(iii) washing of coal, (iv) such other uses as may be specified,from carrying on coal mining operations in any form. Sub-clause (c) of Section 3(3)
enhances the prohibition by mandating that a lease for winning or mining coal may
be granted only to a government company or corporation, however provides further
that a sub-lease may be granted by the government company or corporation to
private parties in isolated small pockets not amenable to economic development and
not requiring rail transport. Vide notifications dated 15.03.1996 and 12.07.2007
production of cement and production of syn-gas obtained through coal gasification
(underground and surface) and coal liquefaction, were notified by the central
government as an approved end uses under Section 3(3)(a)(iii)(4).
3.5.2.3 By virtue of Section 4 the Central Government became the deemed lessee of such
mines as granted by the state governments under the Mineral Concession Rules
196057. Moreover the lease is renewable for the maximum available period that is
allowed by the Mineral Concession Rules. All mines and adjoining properties and
assets were transferred (subsequently to CIL) free of any mortgages and any other
encumbrances58, which were dealt with by the Commissioner of Payments59under
the Coal Mines (Intimation regarding mortgages, charges, lien or other interests)
Rules 1974.
3.5.2.4 Coal Mines (Nationalization) Amendment Bill 2000: In the year 2000, the Coal MinesNationalization Amendment Bill was introduced in the Rajya Sabha. As per the
Statement of Objects and Reasons accompanying the Bill, an estimated demand
supply gap of 235 MT was expected by 2007, which could not be bridged by the
nationalized coal companies. The Bill therefore seeks to introduce Section 3A in the
principal Act of 1973 which would permit domestic private companies to mine and
produce coal either for own consumption, sale of for any other purpose in
accordance with the prospecting licence or mining lease or sub-lease. However,
power is sought to be vested in the Central Government to determine the location,
57
Issued under the Mines and Minerals (Regulation and Development ) Act, 1957.58Section 6 of the Coal Mines (Nationalization) Act 1973.
59Appointed under Section 17 of the Coal Mines (Nationalization) Act 1973.
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size, and other conditions, in relation to the operation of a coal mines by a private
company.
3.5.2.5 The Bill was referred to the Standing Committee on Energy which submitted its
Report on 31.08.2001, endorsing the passage of the Bill. However, due to opposition
by trade unions, and frequent change of government at Union level requiring
repeated Cabinet endorsement for the Bill, further delayed its approval.60
3.5.2.6 Observations: It is instantly recognizable from the above review that the Act has a
direct bearing on competition in the coal sector by limiting the number of producers
in the market and giving government companies exclusive rights over coal
production.
3.5.3 (c)The Coal-Bearing Areas (Acquisition and Development) Act, 1957
3.5.3.1 Preamble: The preamble of the Act states that it intends to establish greater public
control over coal mining industry and its development by providing for the acquisition
by the Government of unworked land containing or likely to contain coal deposits or
rights over such lands by modifying or extinguishing current agreements, leases ,
licenses etc..
3.5.3.2 Main Provisions: This Act aims at facilitating coal prospecting and acquisition of land
for mining by the Central Government. When the Central Government is of the
opinion that coal is likely to be obtained in any locality, the Central Government canthrough notification in the official gazette, give notice of intent to prospect for coal61.
Such a notification under Section 4 (1) of the Act shall have the effect of setting aside
any license for prospecting coal or any other mineral on the land so notified 62. The
said notification also has the effect of setting aside any mining lease in so far as it
authorises the lessee or any person claiming through him to undertake any
operation in the notified land63.
3.5.3.3 If the Central Government were to be satisfied that the coal is obtainable in the land
notified for prospecting, it can within two years of notification for prospecting or
further one year thereafter publish in the gazette its intention to acquire the wholeor any part of the land notified for prospecting64. Subsequent to the declaration of
acquisition under Section 9 of the Act, the land and the rights therein vest with the
Central Government65 .
3.5.3.4 The Central Government can thereafter direct and vest the rights in the land on a
60Supra n.7, p. 144.
61Section 4 of the Coal-Bearing Areas (Acquisition and Development) Act, 1957.
62Section 5 (a) of the Coal-Bearing Areas (Acquisition and Development) Act, 1957.
63
Section 5 (b) of the Coal-Bearing Areas (Acquisition and Development) Act, 1957.64Section 7 of the Coal-Bearing Areas (Acquisition and Development) Act, 1957.
65Section 10 of the Coal-Bearing Areas (Acquisition and Development) Act, 1957.
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the provision of village sites, or the extension, planned development or
improvement of existing village sites;
provision of land for town or rural planning;
provision of land for the planned development of such land from public funds
pursuant to any scheme or policy of the government and subsequent disposal
thereof in whole or in part by lease, assignment or outright sale with the object of
securing further development as planned;
the provision of land for a corporation owned or controlled by the state;
the provision of land for any other scheme of development sponsored by the
government, or, with the prior approval of the appropriate government, by a local
authority; and
the provision of any premises or building for locating a public office, but does not
include acquisition of land for companies.
the provision of land for a corporation owned or controlled by the state.
3.5.5.3 In addition, certain states have amended the central statute and framed their ownrules for compulsory land acquisition. A company has to abide by the State
legislations in those states in which it conducts its business, in addition to the
Central legislation.
3.5.5.4 Observations: As discussed earlier in this Report, the procedures under the Land
Acquisition Act and the Coal Bearing Areas Act differ in favour of the government
coal companies. The effect of this difference is examined further later in this report.
3.5.6 (k) Environment related legislation81
3.5.6.1 Clearances by the Ministry of Environment and Forests (MoEF) is required under
the Environment (Protection) Act, 1986, as amended, the Forest Conservation Act
1980, if any forest land is involved, the Air (Prevention and Control of Pollution)
Act, 1981, the Water (Prevention and Control of Pollution) Act, 1974, as amended,
and the Water (Prevention and Control of Pollution) Cess Act, 1977, are required
before commencing the operations of the mines. Applications are made through
the respective State Governments who then recommend the application to the
Government of India.
3.5.6.2 Environment Protection Act: The Act has been formulated by the Central
Government for the protection and improvement of the environment in India and
for matters connected there with. The Act also prohibits any person carrying on any
industry, operation or process from discharging or emitting or permitting to be
discharged or emitted any environmental pollutants in excess of such standards as
may be prescribed.82 The Central Government has been provided with broad rule
81This overview relies on information provided in pages 120-122 of the Coal India Final Prospectus dated
October 26, 2010, save for the parts relating to the go/no go policy adopted by the Ministry ofEnvironment in 2009 and the Comprehensive Environment Pollution Index Notification of January 2010.
82Section 7 of the Environment Protection Act 1986.
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making powers, such as, (a) the standards of quality of air, water or soil for various
areas and purposes; (b) the prohibition and restriction on the location of industries
and the carrying on process and operations in different areas; and (c) the
procedures and safeguards for the prevention of accidents which may cause
environmental pollution and for providing for remedial measures for such
accidents.
3.5.6.3 In 2006, the Government of India issued another Notification No. S.O. 1533(E)
dated September 14, 2006, (2006 EIA Notification), according to which all new
projects, expansion of existing projects, product-mix activities and projects require
prior environment clearance if they are listed in the schedule to the said
notification. The projects and activities listed under category A of the schedule
require clearance from the regulatory authority constituted by the Central
Government, whereas, the projects and activities listed under Category B are
required to obtain clearance from State Environment Impact Assessment Authority,
(SEIAA). The SEIAA will base its decision of granting prior environment clearanceon the basis of the recommendations of the State Expert Appraisal Committee
(SEAC) while the Central Government will grant prior environmental clearance for
category A projects on the basis of the recommendations of the Expert Appraisal
Committee (EAC) to be constituted as per this notification. If the SEIAA or the
SEAC is not constituted in any state then the Category B project will be deemed to
be Category A project. The notification provides for four stages for prior
environment clearance. However not all stages apply to all projects. The four stages
are:
(i) Screening: During this process the appraisal authority shall determine whether
there is a requirement of Environment Impact Assessment Report to besubmitted as per the guidelines given by the Central Government in this context.
(ii) Scoping: During this process the appraisal committee will determine the Terms
of Reference for each of the category (i.e. category A and B 1 projects). TOR will
be conveyed to the applicant within 60 days of receipt of the application in
prescribed format.
(iii) Public Consultancy and Public Hearing: This process involves obtaining and
receiving objections and other concerns of local affected persons and others
who have a stake in the project and its impact. Public Hearing should be
conducted by the State Pollution Control Board or the Union Territory Pollution
Control Committee within 45 days from the date of receiving the applicationfrom the project proponent to this effect.
(iv) Appraisal: SEAC or EAC accordingly shall consider the final Environment Impact
Assessment report and the outcome of public consultation and other documents
and make recommendations to the regulatory authority. They may recommend
granting prior environmental clearance on stipulated terms and conditions or
rejecting the applications recording the reasons for the same.
3.5.6.4 Mining of minerals with a mining lease area of over 50 hectares is listed as a
Category A project mining lease area of between 5 and 50 hectares is listed as a
Category B project. Prospecting (not involving drilling) is exempted. Coal washerieswith an annual output of over one million tonnes are listed as Category A projects,
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however, if located within mining area the proposal is to be appraised together
with the mining proposal.
3.5.6.5 Forest Conservation Act 1980: In case forest lands are involved, the mining lease
can be executed only after obtaining the forest clearances. The Act provides that no
State Government or any other authority shall authorize, without the prior
approval of the Central Government, that any forest land or any portion thereof
may be used for any non-forest purpose where non-forest purpose refers to the
breaking up or clearing of any forest land or portion thereof for:
the cultivation of tea, coffee, spices, rubber, palms, oil-bearing plants,
horticultural crops or medicinal plants; or
any purpose other than afforestation but does not include any work relating or
ancillary to conservation , development and management of forests and wildlife.
3.5.6.6 Air & Water Acts: Under the Air and Water Acts, a company responsible for
emitting smoke or gases by way of use as fuel or chemical reactions or fordischarging industrial or domestic wastewater, respectively, is required to make an
application to the state pollution control boards. The consent to operate is granted
for a specific period after which the conditions stipulated at the time of granting
consent are reviewed by the state pollution control board. In the event of non-
compliance, the state pollution control board may take necessary measures to
ensure compliances, and even mandate closure the mine or.
3.5.6.7 Water Cess Act: Mining is a specified industry under the Water Cess Act and a
lessee is required to pay the surcharge as stipulated on the basis of water
consumed. The assessing authority at the state level levies and collects thesurcharge based on the amount of water consumed by such industries. The rate is
also determined on the basis of the purpose for which the water is used. Based on
the surcharge returns to be furnished by the industry every month, the amount of
cess is assessed by the relevant authorities. A rebate of up to 25% on the surcharge
payable is available to those industries which install any plant for the treatment of
sewage or trade effluent, provided that they consume water within the quantity
prescribed for that category of industries and also comply with the effluents
standards prescribed under the Water Act or the Environment Act.
3.5.6.8 Go-No Go Policy: In June 2009, the Ministry of Environment & Forests and theMinistry of Coal initiated an exercise to identify prima facie go and no-go areas
for coal mining. Go areas were those where, prima facie, the statutory Forest
Advisory Committee in the MoEF considered proposals for diversion of forests land
for coal mining purposes. No-go areas were those areas with rich forest cover and
biodiversity where applications were not entertained for forest land diversion. The
concept behind the policy was to avoid the uncertainty. Prior experience showed
that companies would apply for forest clearance for coal blocks and have to wait a
number of years only to have them eventually rejected as they were in dense forest
areas. By identifying such areas in advance, the companies could apply only in the
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recommend LOAs in respect of power utilities, IPP, CPP, cement and steel
manufacturers;
CIL to meet the full requirement of coal under the FSAs even by resorting toimports if necessary;
After the execution of FSAs, parties to try to execute a tripartite agreement(FSTA) with the transport provider (Railways) as well;
Introduction of an e-auction scheme by CIL, which will include provide for (i)access to any buyer, (ii) no floor price but rather an undisclosed reserve price not
lower than the notified price, (iii) announcing the programme of e-auction well in
advance and with sufficient publicity, (iv) an announcement by CIL at the
beginning of each financial year declaring the quantity and quality of coal to be
available through e-auction, and the location from which it would be available, (v)
initially around 10% of CIL production to be earmarked for e-acution.
3.5.8.2 Currently approximately 10.0% of CILs aggregate raw coal production is offered
under the e-auction scheme. This quantity is reviewed from time to time by the
Ministry.
3.5.8.3 With the amendment to the Mines and Minerals (Development and Regulation) Act
in 2010, a system of allocation of coal blocks for specified end uses through auction
by competitive bidding has been introduced. The Coal Ministry is seeking to
formulate appropriate new guidelines for allocation of coal blocks89 in accordance
with the amendment.
3.5.8.4 Observations: The Distribution Policy has a direct bearing on competition in the
sector and its effects are discussed in the next chapter.
3.5.9 Pricing
3.5.9.1 Since 1945, the price at which the various types and grades of coal were sold was
controlled by the Central Government, under the provisions Colliery Control Order
of 1945. Beginning in March 1996, the Government gradually deregulated the price
of various types and grades of coal. The pricing of coal in India was completely
deregulated pursuant to the Colliery Control Order, 2000 with effect from January
1, 2000. As no other companies are allowed in the field, coal pricing is now entirelydependent on the price notified by Coal India Ltd.
3.5.9.2 Unlike a normal monopolist, however, the price CIL is able to fix is influenced by the
requirements of the overall development in the country, and primarily that of the
power sector. Thus, the price fixed by CIL under the FSAs with the erstwhile core
consumers is reasonable compared to what a private sector monopolist would have
been in a position to fix. This is evident from the prices fixed for the 10% coal
allocated for sale through the E-Auction scheme and for the sale of higher grade
the Standing Linkage Committee (Shot Term), which used to meet on quarterly basis for allocation of coalto the power and cement sectors, was discontinued.
89Answer by the Minister of Coal to unstarred question No. 3553 in the Lok Sabha dated 24.08.2011.
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open cast mines the coal is mined only to the depth of 150 meters. At the current
production levels the known extractable reserves may be depleted in the next 45
years, moreover a large proportion of coal reserves may not be extractable102. There
has been a deterioration of the quality of domestic thermal coal due to increased
reliance on cost effective open cast mining operations 103. However, the lignite
resources in the country have been estimated to be adequate to meet the projected
demand104.
3.6.4 Based on the foregoing statutory and regulatory review the following issues affecting
the competitiveness of the sector have been identified, the categorisation has been
made from an impact on competition view point105. The issues have been identified
on the basis of the criteria mentioned in the Competition Checklist (Annex 3 of the
TOR). The issues and the relevant entries in the Competition Checklist have been
discussed in the table below. The analysis in Chapter IV of this report details the
relevant statutory provision, regulation, rule, industry practice etc and suggests
remedial pro-competitive measures:
August 2006, P.117,http://planningcommission.nic.in/reports/genrep/rep_intengy.pdf, Last Accessed on
20.12.2011102
Ibid, P.117.103
Ibid, P.116.104
Report of the Expert Committee on Road Map for Coal Sector Reforms , Part II, Ministry of Coal ,
Government of India, Oct 2007, Paras 1.31, 1.32, 1.34, 1.35, p. iv, http://coal.nic.in/expertreport2.pdf,
Last Accessed on 20.12.2011105
Issues in the Captive Mining segment and Coal India have been dealt with separately as captive mining issupposed to supplement the production in CIL & SCCL. It is in this context that it becomes necessary to
understand the dynamics between the two.
http://planningcommission.nic.in/reports/genrep/rep_intengy.pdfhttp://planningcommission.nic.in/reports/genrep/rep_intengy.pdfhttp://planningcommission.nic.in/reports/genrep/rep_intengy.pdfhttp://coal.nic.in/expertreport2.pdfhttp://coal.nic.in/expertreport2.pdfhttp://coal.nic.in/expertreport2.pdfhttp://coal.nic.in/expertreport2.pdfhttp://planningcommission.nic.in/reports/genrep/rep_intengy.pdf -
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4. Changing environmental
policies, and
considerations delaying
grant of prospecting
permits and mining leases.
D1
The sector subject to policies or regulations that
are onerous, costly time-consuming, and
frequently change, thereby creating policy
uncertainty. The issue of delays due to time
consuming environmental clearances and
uncertainty over the outcome has been
documented in earlier reports of expert
committees. The frequent changing policies and
rules adopted in the failed experiment of the
recent Go-No Go and CEPI policies have added
to the uncertainty and have been blamed for the
fall in production levels. While this is primarily an
issue concerning the removal of bottlenecks it
acts as a disincentive for other potential suppliers
to enter and compete in the sector.
5. The various advantages
granted to CIL due to
nationalization in 1973
and the incumbency
benefits enjoyed by CIL
over the last 35 odd years.
B3
State-owned enterprise(s) receiving benefits and
preferential treatment not available to other
firms which appear to have the effect of limiting
competition in the relevant market. High sunk
costs.
6. Non Working of Coal
Blocks and Mining
Licenses by CIL does not
invite cancellation.
B3
State-owned enterprise(s) receiving any benefit(s)
or preferential treatment not available to other
firms which appear to have the effect of limiting
competition in the relevant market.
7. Price Distortions B1, B5
Limits sellers ability to set the prices for goods or
services.
The under-development of transport and other
infrastructure appears reinforces the monopoly
status of the incumbent firms and reduces any
potential competition.
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exclusive protection.
4.6.1 CIL has also received budgetary support from the Government over the years,
including for building rail infrastructure for transport of the coal produced by it.
Further, in 1995 1996 the company again benefited from a financial restructuring
package by the Government, whereby Rs. 8,917 million of interest liability was
waived, Rs. 9,041.8 million of plan loan repayment arrears was converted to
preference equity and Rs. 4,326.4 million of non plan payment arrears were allowed
a moratorium for repayment and interest accrual for a period of three years, to be
repaid in three equal instalments.115
4.6.2 Even assuming the sector was opened to private participants, and given the high
sunk costs inherent in the coal producing sector, these are factors that have
historically conferred a significant competitive advantage to CIL and continue to
affect its competitive position in the sector. Removing the statutory barrier to
private sector participants would result in several pro competitive advantages suchas increases in production, new and innovative technology being introduced, new
distribution and sales techniques, etc.
4.6.3 Since coal mining involves high sunk costs and long term investments CIL with
established operations enjoy incumbency benefits. These incumbency benefits
could be summarised as follows116:
All the available geological data are in possession with CIL; Monopolizing infrastructure (CIL has constructed railway lines through budgetary
support etc.);
Domain knowledge in terms of vast experience; Established market and clientele; Business Goodwill; CIL enjoys close proximity with the Ministry of Coal that guides CILs pricing and
distribution decision. This is at once an advantage and a disadvantage due to the
fact that it would reduces CILs competitiveness as and when the market is
opened to private participants.
4.6.4 Post privatization, the extensive government regulation of CIL would reduce its
competitiveness. The New Coal Distribution Policy of 2007 directly controls the
amount of coal that CIL is able to sell and the persons to which the coal is to be sold,and the broad terms of agreements which govern the parties contractual
relationship. CIL cannot therefore respond to realistic market conditions, given that
the entire distribution is controlled by the interested Ministries. However, at the
same time, while reducing the competitive position of CIL, the policy ensures a
rational and coordinated distribution of coal for overall development of the Indian
infrastructure and economy. In the present market context of one enterprise
controlling over 80% of the market, it is undesirable that the distribution or pricing
be left to market forces, where the monopolist is free to reduce output and set the
115Seewww.coalindia.in
116Supra n.7, p.145.
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Freight rates of railways for transport of coal need to be rationalised119. Alternative modes of movement of coal be promoted for ex. coastal shipping,
river/canal movement, movement of coal slurry through pipeline etc.120
.
4.7.2 Though the price of coal should be ideally determined in a competitive market, the
same may not be possible given the number of suppliers, hence a process of
competitive price discovery needs to be adopted121. Till such time the demand and
supply for coal comes to equilibrium there exists a need for an agency to regulate
the price for major bulk consumers of coal, especially those consumers whose
output prices are strictly controlled as in the power sector 122. The report of the
Shankar Committee observes that the decisions regarding pricing are still influenced
by the Ministry of Coal and other interested ministries, nevertheless it also states
that the benefits of price deregulation of prices will be evident only with the
presence of more players in the coal market123.
4.8 IV. Impediments on Captive Mining
4.8.1 Under the Coal Mines (Nationalisation) Act 1973 captive consumption by companies
involved in generation of power, production of iron and steel, production of cement,
washing of coal, and syn gas production has been allowed. It was thought that
captive mining would help enhance productivity in the short and medium term.
4.8.2 However the captive mining policy has faced significant hurdles and as not been able
to achieve the goal of enhanced productivity124. The procedures for obtaining the
numerous approvals and permissions from diverse departments at the State andCentral level for launching a coal mine are proving to be the major factors which
inhibit the companies using coal but not familiar with coal mining shying away from
captive mining125.
4.8.3 One of the major issues prior to the amendment of Section 11A of the Mines and
Minerals (Development and Regulation) Act, 1957 was non transparent allocation of
captive coal blocks. Further CIL was the custodian of all coal blocks and would
recommend the coal blocks which could be allotted126.
4.8.4 The Mines and Minerals (Development and Regulation) Act, 1957 was amended in2010 to make a special provision for granting reconnaissance permit, prospecting
license or mining lease for companies engaged in captive mining of coal or lignite ,
though
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