Government removes restrictions on Coal purchases

Context

With an ambition to stabilize the supply of coal to power plants, recently the government decided to remove restrictions on coal purchases.

This move aims to enhance coal availability, increase domestic production, and support the energy sector’s growing demands.

Relevance:
GS-02 (Government policies and interventions)

Dimensions of the Article:

Evolution of Coal Supply Policies
Coal Pricing and Market Mechanisms
Growth in Domestic Coal Production
Government Initiatives to Boost Coal Production
Technological Advancements in Coal Mining

Evolution of Coal Supply Policies

Earlier, the New Coal Distribution Policy (NCDP) of 2007 regulated the supply of coal to power plants.
But in 2017, the Shakti Policy was introduced, which replaced the old New Coal Distribution Policy. The Shakti policy made coal supply agreements more flexible.
- Under these policies, coal is supplied based on Fuel Supply Agreements (FSA) between coal companies and power plants.
However, in 2022, the government decided that all existing power sector linkage holders would receive coal to meet their full Power Purchase Agreement (PPA) requirements, regardless of Annual Contracted Quantity (ACQ) limits.
This ensured power plants could access the coal they needed, improving reliability in electricity generation.

Coal Pricing and Market Mechanisms

Coal supplied under FSA follows commercial pricing terms, determined through agreements with coal producers like Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL).
Apart from FSA arrangements, coal companies also offer coal through Single Window e-auctions, which cater to multiple sectors, including power generation.

Growth in Domestic Coal Production

The government has focused on increasing domestic coal production to reduce reliance on imports. India recorded its highest-ever coal production in 2023-24, reaching 997.83 million tonnes.
For 2024-25 (until February 2025), coal production stood at 929.15 million tonnes, reflecting a 5.45% growth compared to the previous year. This steady rise highlights India’s push toward energy security.

Government Initiatives to Boost Coal Production

To ensure an uninterrupted coal supply, the government has taken multiple measures, including:

Regulatory Reforms
- The Ministry of Coal conducts regular reviews to fast-track coal block development.
- Amendments to the Mines and Minerals (Development and Regulation) Act (MMDR Act) in 2021 allow captive mine owners (except atomic minerals) to sell up to 50% of their annual coal output in the open market after meeting internal requirements.
Streamlined Approvals and Monitoring
- A single window clearance portal was launched to expedite coal mine operationalization.
- A dedicated project monitoring unit assists coal block allottees in securing necessary approvals for faster commencement of mining operations.
Encouraging Commercial Mining
- The commercial mining auction, introduced in 2020, operates on a revenue-sharing model.
- Companies producing coal before the scheduled date receive a 50% rebate on the final offer price.
- Incentives, including rebates for coal gasification and liquefaction, further promote efficiency in coal utilization.
- Liberal terms allow greater participation in commercial coal mining, including 100% Foreign Direct Investment (FDI) through the automatic route.

Technological Advancements in Coal Mining

Coal companies have adopted new technologies to enhance coal extraction and processing:

Coal India Limited (CIL) is implementing Mass Production Technologies (MPT) in underground mining using Continuous Miners (CMs). Highwall mining is also being explored in abandoned mines, alongside plans for large-capacity underground mines.
Singareni Collieries Company Limited (SCCL) is focusing on new project development and improving infrastructure for coal evacuation through Coal Handling Plants (CHPs), Crushers, Mobile Crushers, and Pre-weigh Bins.

Conclusion

The government’s proactive steps in coal sector reforms, policy changes, and production enhancement have strengthened India’s energy security. By ensuring an uninterrupted coal supply to power plants, encouraging technological adoption, and opening the sector for commercial participation, India is making significant strides in meeting its growing power demand while promoting sustainable coal utilization.