The government wants to overhaul the working of private mine developers and operators (MDOs) ahead of the first coal mining auctions with private company participation next month and wider plans for a massive increase in coal production.
The Prime Minister’s Office (PMO) has written to NITI Aayog, asking it to consult with industry to create a new legal framework and policy regime for private mine operators.
MDOs play a vital role in the operation of coal mines, but there are two challenges: they are illegal, and they are mostly selected for their ability to do the job at a low cost rather than for bringing in the technical expertise needed to scale up coal mining.
The government’s move comes amid plans by Coal India, the world’s largest coal miner, to produce 1 billion tonnes a year by 2024.
In a letter to the NITI Aayog, the PMO said, “There are differing legal positions, practices and approaches and a lack of consistency and transparency” in how MDOs are currently engaged in mining coal and major minerals.
“The appointment of MDOs before allotment of the mineral block appears inappropriate and this may not be allowed in future,” the PMO said. It asked NITI Aayog to frame guidelines for the selection and appointment of MDOs in consultation with secretaries from the Union ministries of mines, coal, steel and finance. Mint has seen a copy of the letter.
In the mining industry, a mine owner often contracts the work of mine development to a third-party MDO, especially in coal. The MDO oversees the whole range of activity, from mine design, planning and construction and rehabilitation of local populations to overburden removal, mining and processing and delivery of the mineral.
The MDO contract is awarded mostly on the basis of quoted mining cost per tonne, to the lowest bidder.
So far, coal mine ownership has been restricted to PSUs like Coal India and NTPC or state, who have been the largest employers of MDOs. But with commercial coal mining slated to begin in October, the MDO industry is expected to expand.
However, outsourcing mining activity is illegal under the Contract Labour Act and Mines and Minerals Act. PSUs and state governments have so far escaped a legal tangle with approval from the ministry of coal.
Pankaj Satija, chief – regulatory affairs, Tata Steel, said. “A mine owner uses an MDO in India primarily to cut costs and improve efficiency. This, however, is in contrast to the global practice of appointing MDOs to bring in expertise and drive adoption of technical best practices.”