Captive Coal Mining by Private Power Developers Issues and Road Ahead: Summary of recommendations

Ministry of Coal has allocated captive mines to bulk users of coal, in public and private sectors. However, very few of the coal blocks have started production. Summarized below are the recommendations which may be taken up by the Central Government, State Government and Developers to facilitate the rapid development of coal blocks: 1. Guidelines followed for Identification of Coal Blocks for Captive Allocation Central Government: With reference to identification of coal blocks for allocation, the following should be considered: Coal India Ltd (CIL)/ Singareni Collieries Company Ltd (SCCL), currently, identify blocks for allocation to private sector which are at a distance from the existing blocks of CIL/SCCL. This practice should be modified and blocks which are in the vicinity of CIL/SCCL and which are not included in the expansion plans of CIL/SCCL, should also be included in the list of captive blocks for allocation; In identifying captive coal blocks at reasonable distance from existing mines and projects of CIL/SCCL, it should be considered that the distance should not be at a disadvantage to the captive coal block developer in terms of available infrastructure and other facilities; Without disturbing the present procedure of coal block allotment, the future allotment of coal blocks should be on the basis of better investigation and for which CMPDIL and other agencies should be mobilized State Government: The State Government and its agencies should facilitate development of infrastructure in the mining areas, particularly in providing right of way, railway clearances, water, electricity, etc. Developers: The captive block developers should coordinate with other coal block developers in proximity to jointly fund the development of Infrastructure based on a Master Plan prepared by an independent agency. 2. Allocation of Coal block Central Government: The Ministry of Coal should not only look into the promoter background and the end-use, but should also give adequate weightage to the technical & financial capability of the applicants for timely development of the blocks. Further, auctioning approach may be adopted for allocation of coal blocks. However, auctioning of the block to the highest bidder may not be economically viable and adversely affect the ultimate consumer. Thus, the following approaches, depending on the level of information available for the coal blocks, may be adopted in taking the auctioning route for allocation of blocks: Production sharing formula for fully unexplored blocks ; Maximum estimated production for partially explored blocks; & Lowest cost of power generated from coal from fully explored captive blocks with adequate information on the mineable coal reserves. 1

3. Approvals and Clearances Central Government Central Government should bring about the legal changes to have a single window approach through a nodal agency at the State Level under the department of mines, which would have representation from all the concerned departments in the State Government. The nodal agency can pre-determine the conditions for each category of land based on environmental sensitivity and nature of the proposed activity (prospecting, mining etc.). The nodal agency may complete the requirements of identification of land for compensatory afforestation, enumeration of trees, costbenefit analysis, etc. before inviting application for mining lease. Public-Private Partnership model can be adopted in the form of a shell company formed for each of the captive blocks allocated. Shell companies (formed by the Public sector) are bid out to the private sector only after obtaining clearances and land acquisition is completed. MoEF should segregate coal bearing areas into Go and No-Go areas for each type of lease (Reconnaisance, Prospecting, and Mining) on the basis of the forest cover and environmental & ecological sensitivity. For areas defined as Go, it may be prudent to allow minimal or no forest & environmental clearances for investigative or prospecting purposes, with the conditionality that cutting of trees without prior permission is not allowed. Non-coal bearing areas can be used for rehabilitation colonies and townships. A concurrence by Forest Advisory Committee or the empowered committee is required for obtaining forest clearance. The committee then sends a report to the Honble Supreme Court before sanction is accorded. This procedure needs to be reviewed to reduce delays in awarding clearances. MoEF clearances for projects which have a greater probability of commencing operations before the Eleventh Plan should be given priority. The Ministry of Coal as well as MoEF should grant consent to the developer of a coal block to develop the block in 2-3 phases, so that production could start early.

State Government: State Government should adopt procedures to issue the prospecting license within a minimum time. 4. Land Acquisition State Government: The procedure for land acquisition needs to be made less time consuming as the State Governments in large number of cases own significant portion of the land. 5. Rehabilitation of Project Affected People (PAP) Central Government: It is recommended that the Ministry of Coal coordinate with the State Governments to align the State R&R Policies with the National R&R Policy.

Further, the State Governments should facilitate the developers in negotiating the compensation package with the PAPs. State Government: For general development and improvement in the coalfield areas, the State Government could consider creating an Area Development Fund by applying a levy on each tonne of coal produced. This fund could be utilized for social welfare of PAP including their health & education, improvement of infrastructure, roads, water supply etc. 6. Geological Investigations & Mining plan alternate agencies Central Government: New agencies with the competence to perform geological investigations need to be set up and accredited by the Government of India. These agencies should be independent and unaffiliated to Coal India Limited or other public sector coal companies. These agencies or an independent expert group should also be empowered to review and approve the mining plan, which would be an input to Ministry of Coal. 7. Tapering coal linkage/ marketing of surplus coal Central Government: The timeframe for development of coal block is likely to be much longer than a power plant. Ministry of Coal, therefore, has decided to provide coal linkage on a tapering basis to the power producers who have been allotted captive coal blocks and whose mining plan has been approved. It is suggested that the Ministry of Coal should provide for the condition that the mining lease should be approved before the power plant commences operations. 8. Joint Allotment of Coal Blocks Central Government: In case of joint allotment of coal blocks it has been observed that some of the companies in the Joint Venture do not furnish the Bank Guarantee, which hinders the development of the block. Companies in the consortium which furnish the Bank Guarantee should be allowed to proceed with development of the coal block, and the partners who fail to provide the bank guarantee should be replaced with other companies from among the applicants whose applications are pending with the Ministry.

Captive Coal Mining by Private Power Developers Issues and Road Ahead
The rapid growth in the Indian economy has led to a robust growth in the demand for power. The demand for power has been constantly outpacing supply. With a view to reducing the demand-supply gap, large generation capacity additions have been planned. Notwithstanding efforts to have a diversified portfolio of fuel options in power generation, share of coal based generation has increased over the years and with large capacity additions envisaged over next decade, coal will continue to remain the primary source of fuel for power generation. Besides substantial coal based capacity additions, increase in demand for coal has been accentuated by improved utilization of plants, diminishing quality of coal and inadequate availability of gas. With rapid growth in demand for coal, coal supply is proving to be a major cause for concern. Government of India (GoI) is targeting coal based generation capacity addition of about 53000MW by 2012 (end of the 11th Plan period), coal based installed capacity would then be more than 125 GW by 20121. In this scenario, there is an apprehension that coal companies may not be able to cater to the enhanced coal requirement due to resource and other constraints. To augment the coal supply, Ministry of Coal, Government of India decided to allocate captive mines to bulk users of coal, in public and private sectors, and consequently many captive coal blocks have been allocated to power developers2. In May 2007, at the Parliamentary Consultative Committee meeting of the Ministry of Coal3, it was announced that to meet the coal demand about 81 coal blocks with geological reserves of about 20 billion tonnes have been identified for allocation to companies, both government and private, for permissible end uses. Out of these, 41 coal blocks, with geological reserves of about 15.7 billion tonnes, were earmarked for the power sector. Currently, the allocation coal mining blocks to companies, other than Coal India Ltd (CIL), is done either under the government company dispensation route4 or through the captive dispensation route. These blocks for power sector, have been further categorized in 3 separate lists on the basis of method of allocation which are, Government Company Dispensation Route, Screening Committee5 Route and Tariff based Bidding as per the Ministry of Power Guidelines. The details of these blocks identified for power sector are as follows: Method of allocation Government dispensation route
1

No. of blocks 10

Total reserves (Billion tonnes) 6.1

Power Scenario at a Glance for All India, CEA, GoI, July 2008; White Paper on Strategy for 11th Plan, CEA & CII, August 2007 2 Under the provisions of the 1993 amendment to Coal Mines (Nationalisation) Act, 1973. 3 81 coal blocks identified for allocation under captive END-USE, Press Release, PIB, GoI, 18th May 2007 4 Under the Government dispensation route, the block is allocated to a government company and this company has the right to be used for a specific end-use such as power, steel and cement. 5 A screening committee has been set up in the Ministry of Coal for screening the proposals received for captive mining of coal & lignite. The screening committee comprises of members representing Ministry of Coal, Ministry of Power, Ministry of Railway, Ministry of Steel, concerned State Governments, CIL, CMPDIL, and Department of Industrial Policy & Promotion (Ministry of Industry).

Method of allocation Tariff based bidding as per Ministry of Power guidelines Screening committee route Total

No. of blocks 16 15 41

Total reserves (Billion tonnes) 6.0 3.6 15.7

According to Ministry of Coal, till 31st December 2007, 170 captive coal blocks have been allocated, of which 15 blocks allotted to 3 PSUs and 9 private companies have already started producing coal. Of the 170 captive coal blocks allotted (with reserves 39.3 billion tonnes), 76 coal blocks with reserves of about 23.6 billion tonnes have been allotted to power sector (with 24 coal blocks allotted in 2007)6. It may be noted that production of coal through the open cast mining of coal may not need a lengthy lead time unlike production of coal in the case of underground mining, which involves a lengthy gestation period, particularly when the stripping ratio is high. Given the foregoing, one may be misled into believing that coal production can start within a short period from the allotted coal blocks. However, this is not the case, as the allocated mines could also involve underground mining. Discussions with the private sector and public sector coal mine allottees have revealed that the lead time is atleast 4-6 years, on account of the initial planning, conducting geological studies to authenticate quantum and structure of reserves, obtaining several statutory approvals from multitude of authorities & agencies, formulating mining plan and getting approval, land acquisition, relief and rehabilitation issues, and infrastructure development. This note attempts to examine the problems being faced by the allottees of the captive coal blocks and suggests recommendations which could shorten the actual lead time involved in commercial production of coal from these coal blocks. 1. Guidelines followed for Identification of Coal Blocks for Captive Allocation The guidelines adopted for demarcating the blocks are such that the developers would face a number of problems in quickly bringing the allotted blocks to the production stage. Ministry of Coal relies on Coal India Ltd (CIL) and Singareni Collieries Company Ltd (SCCL), for identifying the captive coal blocks. The guidelines adopted by CIL & SCCL for identifying and allotting coal blocks for captive mining are as follows7: The blocks offered to private sector should be at reasonable distance from existing mines and projects of CIL in order to avoid operational problems Preferably, blocks in greenfield areas having less or no development of basic infrastructure like road, rail link, etc. may be allotted to the public/private sector for
Coal Directory of India 2006-07, Part-I: Coal Statistics, Ministry of Coal, GoI Coal Directory of India 2006-07, Part-I: Coal Statistics, Ministry of Coal, GoI

6 7

captive mining. The areas where CIL has already invested in creating such infrastructure for opening new mines should not be handed over to the private sector, except on reimbursement of costs Blocks already identified for development by CIL where adequate funding is on hand or in sight should not be offered to the private sector Public/private sector should be asked to bear the full cost of exploration in these blocks which may be offered For identifying blocks, the requirement of coal for about 30 years would be considered Others, which include Mine Plan approval under the provisions of Mines and Mineral (Development and Regulation) Act 1957, approval of the Directorate general of Mine Safety, and inspection by Coal Controller for an appropriate enforcement of conservation measures under the provisions of the Coal Mines (Conservation and Development) Act 1974.

The fact that the blocks are identified at a distance from the existing infrastructure of the CIL and also that coal blocks are located in remote areas, devoid of all basic infrastructure like road, rail links, electricity etc, it is difficult for the coal block allottees to quickly bring the coal blocks to production stage. Development of infrastructure on a piece meal basis i.e. individually on block by block basis may cause drain on the resources of the developer, would not bring in economies of scale, and could be onerous as well. Further, the blocks identified are only regionally explored with inadequate information, which adds to risk and also reasons for delay in development of the blocks. Thus, to facilitate speedy development of coal blocks it is recommended that the following should be considered in identifying and allocating coal blocks: If there are coal blocks in the vicinity of the CIL/SCCL blocks which are not included in the expansion plans of CIL/SCCL, then these blocks should also be included in the list of captive blocks for allocation and not excluded simply because of their proximity to CIL/SCCL blocks; In identifying captive coal blocks at reasonable distance from existing mines and projects of CIL/SCCL, it should be considered that the distance should not be at a disadvantage of the captive coal block developer in terms of available infrastructure and other facilities; Without disturbing the present procedure of coal block allotment, the future allotment of coal blocks should be on the basis of better investigation and for which CMPDIL and other agencies should be mobilized Further, in the context of inadequacies in infrastructure associated with the captive blocks identified for allocation, it is recommended that the Central/State Government agencies should facilitate development and creation of infrastructure in the mining areas, particularly in providing right of way, railway clearances, water, electricity, etc. The Government could also consider pre-identification of non-coal bearing corridors to be used for rehabilitation colonies and townships.

The captive block developers should coordinate with other coal block developers in proximity to jointly fund the development of Infrastructure based on a Master Plan prepared by an independent agency. 2. Allocation of Coal block Allocation of coal block should not only look into the promoter background and the enduse, but should give importance to the technical & financial capability of the applicants for timely development of the blocks. The process of allocation of the block could also take into consideration the extent of the preparedness of the developers and the projects. Further, auctioning approach may be adopted for allocation of coal blocks. However, it may be noted that auctioning of the block to the highest bidder may not be economically viable, since it would get translated into a pass through in the cost of end-use product and thereby adversely affecting the ultimate consumer. The following approaches, depending on the level of information available for the coal blocks, may be adopted in taking the auctioning route for allocation of blocks: Status of block Fully explored Partly explored Totally unexplored Possible criteria for allocation Lowest cost of power generated Maximum estimated production Production sharing formula

Auctioning on the basis of maximum proposed production or production sharing formula may be workable till sufficient data on the depth, seam thickness and quantity & quality of the coal is available for the blocks put up for auction. However, once sufficient data is available for the blocks put up for auction, the criteria for grant of block could be linked to the lowest cost of power generated from captive coal block. 3. Approvals and Clearances In the present legislative and regulatory framework, the allottee of a captive coal block has to obtain multitude of clearances and approvals as provided under the provisions of the Coal Mines (Nationalisation) Act, Colliery Control Rule 2004, Coal Mines (Conservation and Development) Act 1974 and rules thereunder, Mines and Mineral (Development and Regulation) Act 1957 (MMDR), Mineral Concession Rules 1960 (MCR), Environment Protection Act with its rules and procedures, and Forest Conservation Act with its rules and procedures. In the federal structure of India, the State Government is the owner of the minerals located within the boundaries of the State. Thus, though the Central Government allocates the coal blocks for captive mining, the State Government grants the Reconnaissance Permit (RP), Prospecting Licence and Mining Lease under the provisions

of the MMDR Act and Mineral Concession Rules. However, the State Government can grant the mining lease only with the prior approval of the Central Government as provided under section 5(1) of the MMDR Act. Central Government approves the application only after the coal block allottee obtains the mining plan approval and obtains clearances from several authorities at the Central, State and District level. Although broadly three clearances are required, i.e. Grant of RP or ML, Environmental Clearance and Forest Clearance, but depending on whether the allotted block is explored or unexplored, in forest or non-forest area, etc. clearances may be required from multiple authorities. The table below indicates the authorities and agencies at the Central and State level from whom the approvals have to be sought by the coal block allottees before actual production can begin: Approvals / Clearances Authority / Agency Involved Mining Lease Approval or Purchase of Geological Report CMPDIL (purchase could also be from SCCL, MECL) Directorate General of Civil Aviation and Ministry of Defence (for unexplored blocks if aerial reconnaissance is conceived) Mine Plan CMPDIL Coal Controller Mine Safety Directorate General of Mine Safety Mining Technology & Conservation Coal Controller (under the provisions of Measures, and Coal Categorisation Colliery Control Rules and the Coal Mines (Conservation & Development) Act) Mining Lease State Government (Mining Department), Ministry of Coal (GoI) Reviewed at various levels within the Departments at the State & Central Government level Environment EIA / EMP Studies State Pollution Control Board State Environmental Impact Assessment Authority State Water Resource and Water Supply Department District Administration (for various aspects of site clearance) Coal Controller Department of Environment (MoEF) Forest Forest Clearance & Committee to Advise GoI (MoEF) Valuing Compensatory Afforestation Office of Chief Conservation of Forests, (Regional Office of MoEF) State Forest Department & District

Authority Department of Forest (MoEF) State Revenue Department Honble Supreme Court Land Acquisition Infrastructure (Electricity, Railways, Road, etc) Ministry of Coal (under provisions of CBA) State Department of Revenue Water, Appropriate Departments of the State Government & Ministries of Central Government

It may be noted that of all the clearances, the MoEF clearance is the most time consuming, since many departments and issues are involved in getting environmental clearances and also vast majority of the coal blocks are situated on forest land. Even geological investigations (which require drilling for exploration) in these areas require MoEF approval. This approval is a lengthy process and takes a lot of time. The Guidelines for Allocation of Captive Blocks & Conditions of Allotment through the Screening Committee, Ministry of Coal, provides for the normative time limit ceilings (Appendix 1) to ensure that coal production from the allocated captive blocks commence production within 36 months (42 months in case the area is in forest land) of the date of issue of letter of allocation in Open Cast (OC) mine and in 48 months (54 months in case the area fall under forest land) from the date of said letter in Under Ground (UG) mines. The following chart (drawing upon the ceiling time limit provided in the Guideline) is an indicative depiction of the schedule of commencement of mining operations from the time the coal block is allocated:

The Guideline of MoC, mentioned above, is to ensure timely development and operation of the allocated captive blocks. In order that the allottee adheres to the timeline, the allottee has to provide a bank guarantee and the encashment of the bank guarantee is dependent on achievement of the milestones consistent with the normative time limit ceilings. Time limits are specified in the Mineral Concession Rules and other legislations for maximum time permissible for grant of approval on an application. This is based on the time to be taken from the receipt of completed application. Since basic information required for processing the application is available at the district level, particularly for forest clearance, unless and until all such information is available, the application is considered incomplete. The time taken at various levels of scrutiny delays the process. Thus, in view of the large number of approvals required, it is unlikely that the timeline specified by MoC for development of coal block would be adhered to by the coal block allottees. The existing provisions of the Acts do not provide for deemed approval status to applications if the time lines are not adhered to and thus there is no urgency in disposing the applications within the specified time.

10

From the above, the following limitations are thus evident in the process of grant of clearances and approvals, which would cause significant delay in production from the allotted captive blocks: Several parallel clearance & approval processes are to be pursued at the Central Government and State Government level, and the allottee has to follow-up the with the applications with various authorities. Environment and Forest clearance is extremely time consuming and significant delays arise in the public consultation process, valuation of compensatory afforestation, identification of non-forest land for compensatory afforestation, enumeration of trees and completion of cost-benefit analysis by the forest departments. The entire process of seeking approvals lack clarity, and often delays in one process causes delay in the others. Besides, conditions of Mining Lease are not standardized and could be significantly influenced by individual judgment of the granting authorities.

A comparative study on grant of mining lease in Australia, Canada and India, included in the Report of the Expert Group constituted by the Ministry of Steel for formulating Guidelines for Preferential Grant of Mining Leases (2005), suggests that the time taken for grant of mining lease in Australia is about 1-2 years (12 + months) and in Canada about 2-3 years (12-36 months) as compared to 7-8 years in India (though the Mineral Concession Rule8 provides that the State Government shall dispose off the application for grant of mining lease within 12 months from the date of receipt of application). The observations of the study are listed in the following table: Australia9 Canada India State is fully empowered to State is fully empowered to State to grant mining lease with grant mining lease grant mining permit (MP) the approval of the Central Government Single window process, Single window process, Approvals are required from involving 4 agencies: involving 3 government multitude of authorities at the Central, State and District Department of Minerals & agencies: Energy Department of Natural levels, with the different authorities having little or no Resource Department of Environment coordination amongst them. Department of Environment National Native Title Broadly 3 different clearances Tribunal Department of Labour requiring submission of separate Land Acquisition Authority applications: in Local Government Minister
8 9

of

Minerals

and

(1)Approval of Grant of ML

Mineral Concession (Amendment) Rules 2002 The Mining proposal approval process and minimum timeframes of process as provided in the Regulatory Guideline No.1 of the Division of Minerals and Energy Resources, Government of South Australia, June 2007 are presented in Appendix 2 of this note. The regulations laid down by the Department of Industry & Resources, Government of Western Australia are similar.

11

Energy is the final approving authority, and takes decisions in consultation with other Ministries. Close interaction between Department of Minerals and Energy and agencies responsible for protection of environment. Mining Lease: Time taken for grant of mining lease is 1-2 years. Time taken for activities involved are fixed & largely adhered to, except in cases where public consultation process & stakeholder participation is involved. Mining Lease: The time taken for grant of MP is 2-3 years. Fixed time frames are complied with.

(2) Forest Clearance (3) Environmental Clearance Central Government grants forest and environmental clearances on the recommendations of the state Government.

Mining Lease: Although time frame for clearances & approvals are specified as less than an year in the various rules, the actual time taken are usually The project can be rejected if 7-8 years for grant of ML. there are strong chances of adverse socio-economic and Identification of non-forest land environmental impacts. for compensatory aforestation Applicants submit application takes long time and at times for grant of lease with the takes more than a decade. Mining Registrar in the Department of Minerals & Requirement of enumeration of trees, cost benefit analysis Energy. carried by the State Forest department is time consuming (10-12 months) The project is first assessed from Environment angle, before processing for Mining Permit (MP). Once the project gets clearance from environment angle, the proponent makes an application for MP. Department of Natural Resource requires a bond or security to ensure that reclamation work is carried out. Info not available Limited emphasis being given on the technical and financial strength of the applicant. The minimum term of Mining Mining lease is granted for 20Permit is 20 years. 30 years

Mining areas are categorized as per environmental sensitivity. Conditions & procedures for each category are predetermined and identified in each case. Grant of mining leases in very sensitive areas require approval from both houses of Parliament. Applicant is required to submit a Bond to take care of environmental and rehabilitation considerations. Financial & technical strength of the applicant are taken into consideration before grant of mining lease. Minimum term of mining lease is granted for 21 years.

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Based on the above observations and discussions, the following suggestions may be considered to speed up the approval process and grant of mining lease: A single window approach through nodal agency set up at the State level under the department of mines with representation from all the concerned departments of various ministries. The nodal agency can pre-determine the conditions for each category of land based on environmental sensitivity and the nature of the proposed activity (prospecting, mining etc.). The nodal agency may complete the requirements of identification of land for compensatory afforestation, enumeration of trees, costbenefit analysis, etc. before inviting application for ML. Since a single window approach may require change in legal procedure, alternately a Public-Private Partnership model can be adopted in the form of a shell company formed for each of the captive blocks allocated, as has been done in the case of UMPPs in Power Sector wherein in shell companies (formed by the Public sector) are bid out to the private sector only after obtaining clearances and land acquisition process completed. As an immediate remedial measure, MoEF should map and segregate the entire coal bearing areas into Go and No-Go areas for each type of lease (Reconnaisance, Prospecting, and Mining) on the basis of the forest cover and environmental & ecological sensitivity. The GoI/Ministry of Coal (MoC) by not allotting the blocks under the No-Go areas would prevent wastage of resource and also speed up the approval process for grant of lease. Thus, for areas defined as Go, it may be prudent to allow minimal or no forest & environmental clearances for investigative or prospecting purposes, with the conditionality that cutting of trees without prior permission is not allowed. Thus, although the need for detailed environmental impact studies, assessment of compensatory afforestation & enumeration of trees and costbenefit analysis for forest clearance is required for mining approval, the same level of detail may not be required for limited drilling involved in prospecting or investigative purposes. Forest clearance is a contentious issue and has been further compounded by the development which requires each case of forest clearance a concurrence by Forest Advisory Committee or the empowered committee, which has to then send a report to the Honble Supreme Court before sanction is accorded. This procedure needs to be reviewed and the empowered Advisory Group or the empowered committee & MoEF could be delegated authority to accord approval in certain defined categories of forest areas. MoEF clearances for projects which have a greater probability of commencing operations before the Eleventh Plan should be given priority. The approval for the prospecting license by the state government should be issued as the foremost requirement within a minimum time. The developer could then develop

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the coal block in 2-3 phases, i.e. identify comparatively easier areas within these blocks (keeping in view government/private land, forest/non-forest land etc.) and get the required investigations, mining plan, approach etc. for the first phase so that production could start early, and simultaneously also repeat the cycle of activities in the subsequent phases. This approach will require due consideration and consents by Ministry of Coal as well as Ministry of Environment and Forest. 4. Land Acquisition Unlike other industries siting of a coal mine does not leave room for choice in the land to be acquired. Land has to be acquired where coal exists, irrespective of population base or existence/ density of forest land. The present procedure on land acquisition is lengthy and is prone to litigation. In a large number of cases, a large part of the land belongs to the government, and in such cases the Government should take measures to transfer the land to the developers in a shorter timeframe. 5. Rehabilitation of Project Affected People As regards Rehabilitation of Project Affected People (PAP) there are many prevalent Resettlement & Rehabilitation (R&R) policies. The Central Government has a National R&R policy 2007, which provides for the State Governments to have their own policies. States in proposing their R & R policies to the benefit of the PAPs are more stringent on the project developers. Also providing employment to all PAP may not always be possible as new technology driven mining methods is less labour intensive. It is recommended that the Ministry of Coal should coordinate with the State Governments to align the State R&R Policies with the National R&R Policy. Further, the State Governments should facilitate the developers in negotiating the compensation package with the PAPs. For general development and improvement in the coalfield areas, the State Government could consider creating an Area Development Fund by applying a levy on each tonne of coal produced. This fund could be utilized for social welfare of PAP including their health & education, improvement of infrastructure, roads, water supply etc. 6. Geological Investigations & Mining plan alternate agencies In most coal blocks allocated to companies, detailed geological investigations have not been done. At present, exploration for coal in India is carried out by Geological Survey of India (GSI), Mineral Exploration Corporation Ltd (MECL), Singareni Collieries Company Ltd (SCCL), Directorates of Mines and Geology of some states. These agencies have limited capacity for drilling of areas (for collating data) and, currently, are already fully stretched. Out of 22,400 km2 of the coal bearing sedimentary formations identified by GSI, only about 10,200 km2, or only 45% of the total area, has been systematically explored through regional and promotional drilling.

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Apart from geological investigations, in the present legislative framework the Mining Plan is approved by Ministry of Coal (with technical inputs from CMPDIL). This further delays the whole process. Thus, new agencies with the competence to perform geological investigations need to be set up and accredited by the Government of India. These agencies should be independent and unaffiliated to Coal India Limited or other public sector coal companies. These agencies or an independent expert group should also be empowered to review and approve the mining plan, which would be an input to Ministry of Coal. 7. Tapering coal linkage/ marketing of surplus coal The timeframe for development of coal block is likely to be much longer than a power plant in view of the various problems faced by the developers. Therefore, there is a risk that the power plant would be commissioned prior to the commercial operations date of the coal mine. In order to mitigate this risk of delay in the commercial operations of the coal mine, Ministry of Coal has decided to provide coal linkage on a tapering basis to the power producers who have been allotted coal blocks for captive use. The tapering linkage is being considered by the Ministry of Coal to facilitate the working of end-use plants in case of development of coal blocks allocated to such consumers does not synchronize with the operation of end-use plant. In this regard, MoC, in December 07, came out with a Guideline relating to issue of LoA/allocation of coal on Tapering Basis to various consumers. However, the application for such tapering linkage would only be considered if the applicant has an approved mining plan for the coal block allocated. This is tricky and most of the captive block owners are unlikely to qualify for tapering linkage even if their end-use plant is in an advanced stage of development. The Ministry of Coal should consider reviewing this condition for grant of tapering linkage to facilitate rapid capacity addition in power (considering the huge deficit situation in power and sustenance of economic growth), and should consider granting tapering linkage based on technical & financial capability of the developer and preparedness of the end-use project. Instead of keeping approved mining lease as criteria for considering the application of tapering linkage, the Ministry of Coal should provide for the condition that the mining lease should be approved before the power plant commences operations. 8. Joint Allotment of Coal Blocks In some cases a coal block has been allotted to a number of companies and the allottees are required to submit Bank Guarantees to safeguard commercial obligations and ensure timely development of the allotted coal blocks. If some partner companies of the proposed Joint Venture do not furnish the Bank Guarantee, then the development of the mine and of the associated power plant with the mine is held up. It is recommended that if in the consortium of companies granted a coal block, one or some of the partners are not serious, but the remaining partners are serious, then the progress of the development of the block by the consortium should not be jeorpardised.

15

Thus, companies in the consortium who furnish the Bank Guarantee should be allowed to proceed with development of the coal block, and the partners who fail to provide the bank guarantee should be replaced with other companies from among the applicants whose applications are pending with the Ministry. However, pending the replacement of partners, the development of the coal block should proceed as usual. In this regard, the company allocated the coal block, having the requisite financial strength, could also be given the freedom to choose partners from among the applicants whose applications are pending with the Ministry. 9. Infrastructure status for Coal industry Coal industry needs to be given infrastructure status so as to attract more players into this industry and to incentivise domestic production of mining equipment. The infrastructure status could be for both coal mining and coal washeries. Infrastructure status for the coal sector would bring it to par with other sectors such as roads, railways, oil and laying of oil and gas pipelines. In the past, this proposal was rejected as bulk of the coal mining was under the public sector. Coal mining, however, is expected to undergo a major change in the coming years with production from captive coal blocks mainly by private sector companies. The main beneficiaries would be power companies as concessions would make coal production economical that would ultimately help in keeping power tariffs low. Coal companies would be also able to import capital equipment and spares at concessional rates.

16

Appendices Appendix 1: Normative Time Limit Ceilings as provided in Guidelines for Allocation of Captive Blocks & Conditions of Allotment through the Screening Committee, Ministry of Coal Sno. EVENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 TIME LIMIT in months from '0' date Allocation 0 Purchase of GR 1.5 Bank Guarantee 3 Mining Lease Application 3 Mining Plan submission 6 Mining Plan approval 8 Previous approval application 11 Previous approval 11 Forest Clearance application 12 Forest Clearance 18 Environment Clearance Application 12 Environment Clearance 18 Mining Lease grant 24 Land acquisition begin 9, 19 Land Acquisition 30, 36 Opening permission application 34, 40 for OC Opening permission grant 35, 41 for OC Production 36, 42 for OC 48, 54 for UG

17

Appendix 2: (a) Flowchart of mining proposal approval process

Source: Mining Approvals in South Australia, Regulatory Guideline No.1 of the Division of Minerals and Energy Resources, Government of South Australia, June 2007

18

Note: PIRSA - Department of Primary Industries and Resources; TRC - Tenement Review Committee - PIRSA independent peer review committee for lease application assessments; DAC - Development Assessment Commission; EIC - Extractive Industries Committee - a Subcommittee of DAC; EPA - Environment Protection Authority; MARP - Mining and Rehabilitation Program; SEB - Significant environmental benefit (offset for native vegetation clearance)

19

Appendix 2(b) Minimum Timeframe of Process

20

21

Source: Mining Approvals in South Australia, Regulatory Guideline No.1 of the Division of Minerals and Energy Resources, Government of South Australia, June 2007

22