In the wake of the recent Supreme Court decision to cancel all but four of coal blocks allocated to companies over the past nearly 20 years, experts have highlighted it as an opportunity to open up the nationalized coal sector, a move that is expected to spur production in a country starved of the mineral.
The coal sector in India was nationalized in the 1970s following reports of law violations by private miners and blocks were handed over to state-run Coal India .
However, the behemoth has failed to increase its production commensurate with the burgeoning demand for coal, which powers about two-thirds of the country's power plants.
As a result, despite sitting on the world's fifth-largest coal reserves, India had to import a fifth of its total coal requirement.
Experts attribute this to lack of investment in technology and say if private companies, especially international giants such as Australia's BHP Billiton or Rio Tinto, are allowed to enter the sector, it would allow for more efficient exploitation of resources.
For instance, more than half of Coal India's 429 mines are of the underground type -- which are technically more difficult to operate than open-cast mines -- but they produced less than 10 percent of its FY14 output of 462 million tonne.
It was for this lack of production growth that led the government in 1992 to decide to hand over 218 coal blocks to private and state-run companies that were into the power, steel and aluminium sectors, virtually for free. The caveat was that they could use the coal mined only for their production purposes and not sell it in the open market.
It was this decision, which the Supreme Court has now adjudged illegal owing to the discretionary manner in which blocks were handed out. It is now expected that the new government will likely auction blocks after they are taken over from current operators at the end of the fiscal year.
But a whole host of experts have said the government can use this to open up the sector for private mining.
This includes Arundhati Bhattacharya , chairperson of State Bank of India, which currently has an exposure to about Rs 30,000 crore to companies affected by the coal verdict, former Coal India chairman Partha Bhattacharya , and former union power minister Suresh Prabhu.
"The judgment should be seen as a great opportunity to make large-scale structural reforms in the coal sector. Reforms have bypassed the coal sector in the right sense of the word," the former Coal India chairman, who navigated a tricky maze of union protests to lead it to its IPO, told CNBC-TV18.
The view was seconded by Prabhu , the NDA 1 power minister who had retreated from active political life these past few years, but who is now back in the limelight, being seen as one of the key advisors to Prime Minister Narendra Modi on matters of energy.
The Modi government has remain tight-lipped on the issue of whether de-nationalization of the coal sector could be on the cards. The move could be highly unpopular among unions and it is not known whether such a proposal could pass muster in the Rajya Sabha, where the ruling BJP is well short of a majority.
The second, and the safer, option would be open up the blocks to similar end-use companies but in an auction process.
But there are already questions that whether a formal auction process can be instituted in the six months between now and the fiscal year end after which Coal India, already under stress to meet its own targets, will have to take over the blocks.
"If an open bidding process takes place [after March 2015], there would be questions over how Coal India could operate them in the interim. There are several issues related to land rights, etc, as well there will be questions of how liabilities or profit/revenue-sharing would be structured," Feedback Infra co-chairman RS Ramasubramaniam told CNBC-TV18.
The government has pledged it would make sure alternate arrangements for power plants are made even in the event production drops during the block handover but hasn't spelled how.
One way could importing more coal from countries such as Indonesia – India's biggest coal trading partner. Last year, India imported about 170 million tonne and importing another 40 million tonne a year (the amount estimated to be produced from the de-allocated mines) should be a costly but possible option.
"To curb transportation costs (from ports to plants), the government can look at a sort of a swap program whereby imported coal is provided to plants nearer to the coast while those in the hinterland are served by Coal India," Deloitte senior director Debashish Mishra said.
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