India One Step Closer to Allowing Commercial Coal Mining

The Indian government moved forward with a bill to open up commercial mining in the country when the Lok Sabha passed the Coal Mines (Special Provisions) Bill, 2014 on Thursday.

The bill includes the Coal Mine Nationalisation Act, which will allow companies to mine coal in India “in any form either for own consumption, sale or for any other purpose,” according to Business Standard.

The bill will re-allocate a number of coal licenses that were canceled earlier this year. Although blocks with operational coal mines will be reserved for use by the power, steel and cement sectors, bidding for 132 “scheduled ore mines, which are yet to be explored,” will be open to all.

Specifically, the new rules will allow for joint ventures between India’s state and central governments and will allow the companies they operate — or any company for that matter — to mine and sell coal in India if they have secured a state license.

Implications

The passing of the bill occurred even though unionized workers at Coal India (NSE:COALINDIA) have loudly criticized the move to bring commercial coal mining to the country. Doing so would break a nearly 42-year monopoly held by the state-run miner — Coal India is currently the only company allowed to sell coal on the open market in India.

Of course, with India being one of the largest coal consumers globally despite sitting on the world’s fifth-biggest coal reserves, the issue is being closely followed by investors and market watchers. While some have said that opening up to commercial mining won’t solve India’s energy problems, others have already said companies like Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO), BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) and Peabody Energy (NYSE:BTU) may take an interest in operating in the country.

Still, Avantika Chilkoti of the Financial Times has suggested that those companies might be “wary of entering the market” given this year’s scandal surrounding the cancelation of illegal coal blocks. In any case, investors will be watching to see whether the bill passes in India’s upper house, and to see what changes take place in the coal market if the bill becomes law.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 

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