India's private companies will soon be able to bid for coal mining licences for the first time ever through competitive bidding, as the country makes another attempt to speed up sputtering local production and investment in the energy sector.
"The Cabinet Committee on Economic Affairs has approved the policy for bidding of coal blocks," Coal Minister Sriprakash Jaiswal told reporters on Tuesday.
The switch to auctions is aimed at bringing more transparency to a sector that has been mired in a corruption scandal over mining rights potentially worth billions of dollars that hit Prime Minister Manmohan Singh's government last year.
Coal mining licences used to be allocated on recommendations of a panel of top bureaucrats across ministries until 2009. So far, it has given mining rights for 178 blocks worth several billion tonnes of reserves, but only around 40 are producing coal due to difficulties in obtaining various approvals.
Competitive bidding of explored coal blocks will be held for cement and steel companies, as they are deregulated sectors.
India will offer hefty discounts for mining licence for the regulated power sector as winners will be selected as per "tariff-based bidding", the coal ministry said in a release.
"This methodology will help in rationalizing the power tariff," the release said late on Tuesday.
India relies on coal to fuel more than half of its power generation, and its failure to mine coal quickly enough to meet fast-growing demand has exacerbated chronic power shortages that sap economic growth and force firms to turn to costly imports.
State-run monopoly Coal India Ltd that accounts for around 80 per cent of the country's output, has missed production targets for years.
The winning bidders will get up to two years for exploration and five years for development of coal blocks, the release said.
The new policy also provides for relinquishment of the mining licence without penalties, if the bidder has met targets.
"Exploration activities in identified coal blocks are at an advanced stage and are likely to be completed shortly," it said.
"It's a good step, seems reasonable and should garner interest. Hopefully it happens soon," said Rakesh Arora, managing director and country head of research at Macquarie Capital Securities (India) Private Ltd.