India: Reinvent PPPs In Coal Sector

Last Updated: 26 November 2014
Article by Jay Cheema

Protracted electricity shortages in India are a grave threat to the country's growth. Despite having among the largest coal reserves in the world, India's reliance on imported coal is increasing and there is a clear need for innovation, technology and infrastructure in the domestic coal sector. Public private partnerships (PPPs) could be a major part of the solution.

Coal commands a 54% share of India's energy basket. However, coal production has consistently been below planned targets and the current model of private participation is clearly not delivering the results needed. There is a need to reinvent the way PPPs are utilised in the coal sector—as has been done in the airports, highways and ports sectors.

The ministry of coal has overall responsibility for policies and strategies regarding exploration and development of coal through Coal India Ltd, the single largest coal producing company in the world.

About 60% of India's total installed power capacity is generated using coal and 85% of new capacity coming on-stream by 2016-17 will also be coal-based. Although India accounts for nearly 10% of global coal deposits, the demand for coal has been outstripping indigenous production. Demand is expected to rise to 980 MT by 2016-17 and to 1,373 MT by 2021-22. Supply, however, is expected to be just 795 MT by 2016-17 and 1,102 MT by 2021-22.

The shortages caused by inadequate or delayed receipt of coal from Coal India and insufficient imports are hitting the electricity generation sector hard. The power minister recently said that several large coal-based projects have, at best, four days of coal reserves on-hand.

The situation was exacerbated when Indonesia, a key source of imported coal, substituted the long-term bilateral coal supply contracts regime that hedged the price and quantity since 1967, with a new coal pricing regulation that resulted in an increase in the landed price of imported coal from USD 36 per tonne to USD 102. The hike threatened to make several competitive tariff based power purchase agreements unviable.

Harnessing India's coal potential is constricted by political and socio-environmental factors. Monopolistic Coal India can't mine coal fast enough, and the country has failed to develop adequate transportation infrastructure to swiftly move coal freight. In addition, substantial coal deposits lie under India's already shrinking forest cover, which houses endangered species and a large tribal population.

While the government needs to fast-track other sources of energy like renewables, LNG and shale, India's dependence on coal means it must find ways to ramp up coal production. PPPs in the coal sector should be one of the more viable solutions.

A number of options currently exist for private participation in India's coal mining sector but they are not without their issues. Through Miner Developer Operator (MDO) participation, the MDO undertakes all mining related activities and has responsibility for seeking approvals and land acquisition. Since the MDO is selected through competitive bidding, the mine owner derives the advantage of the lowest price and the agreement is based on fixed output and fixed revenue.

In the case of joint allotment of a coal block, the JV model is used wherein each consortium member is required to hold equity in the JV company in proportion to their assessed requirement for coal. Their allocation of coal must be used exclusively for their respective end use projects.

Self-mining for captive use is also permitted for companies in iron, cement and power production and they can mine allocated coal blocks, but only for the designated end-use purpose.

While these avenues exist for PPP participation, the system is peppered with regulatory hindrances. Changes required urgently include implementation of a fair and transparent bidding system. In 2012, a massive coal allocation scam was reported by the CAG. The aftermath of the scam resulted in cancellation of a number of coal blocks. The scam left a trail of unanswered questions about the non-transparent method of allocation of coal blocks and increased the clamour for overhaul of the bidding methodology

The current MDO model is just contract-mining, based only on a fixed fee per tonne formula. As a result, there is no in-built incentive for the contractor to scale-up production or to maximise revenue and profit. A PPP route that grants ownership rights to the private partner would result in faster production as the contractor would have invested an upfront equity in the coal block and would have a natural interest in faster turn-around of the mine asset.

In the interest of faster production, the mine owners under MDO arrangements must sort out land acquisition issues and seek regulatory approvals beforehand. It is currently common practice for mine owners to pass on obligations relating to land acquisition and regulatory approvals to MDO contractors, causing long delays in the production of coal.

India must also urgently do away with the end-use clause. No other major country allocates minerals based on an end-use. While tying a mine to an end-use project guarantees security of supply for the project, it also restricts full exploitation of the quality and quantity of the mine. Equally, restrictions on the sale of surplus coal in the open market by captive consumers must be lifted. The right to sell surplus coal in the market has the potential to make the PPP model in coal mining more attractive for investors. The government in this respect is moving in the right direction by formulating a draft policy on usage of surplus coal.

The government could also consider giving "infrastructure status" to the coal mining industry to attract more players. Fiscal concessions available to the infrastructure sector would economise coal production. Coal companies engaged in power generation would also be able to import equipment and machinery at concessional duties.

Arbitrary barriers to private participation need to be broken down to attract foreign investment. Current conditions prohibit the formation by government coal entities of a JV with any foreign private company for developing areas containing coal. This condition is particularly damaging in the context of promoting PPPs in coal mining where private sector companies have the skills, technology and experience required to accelerate development of assets.

Other initiatives such as opening coal exploration to the private sector, boosting investment in development of underground coal mining and incentivising development of coal transport infrastructure with rail, road, pipeline and shipping enhancements would work to rebalance the supply and demand.

If these barriers were removed and appropriate incentives for PPPs put in place, the benefits for India's coal sector, and its economy, would flow. Introduction of new PPPs in India's coal sector is a long-awaited move—and one that requires urgent attention

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions