September 7, 2020 - 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.”

“Many public sector companies like NTPC, Coal India and, of late, NMDC as well as state government PSUs have gone ahead and engaged MDOs in the mines allotted to them without prior approval from the Central Contract Labour Advisory Board,” R.K. Sharma, secretary general, Federation of Indian Mineral Industries, told Mint.

“One can understand engaging MDOs in the case of NTPC and such PSUs because the lease period for coal mining was for captive use, but in the case of Coal India and NMDC and other standalone mining companies, it is puzzling since they are mining companies. With a view to have synergy in the regulatory framework, it is imperative that there is compatibility in different laws for the engagement of MDOs in the case of coal and major minerals.”

Satija recommends clearing the legal inconsistencies and creating a framework that insists on ethical practices and improves safety, while employing the best talent and technology.

With power generation heavily dependent on coal, the need to keep production numbers growing means that MDOs will become significant players in the mineral industry, a senior executive at an MDO said on condition of anonymity.

“Coal India wants to produce 1 billion tonnes every year by 2024. With their own capacities stretched, they need MDOs to produce at least 150-200 million tonnes yearly, that’s why even they are coming out with tenders now to engage MDOs. But these contracts are skewed heavily in favour of state agencies and differ from state to state with MDOs made to absorb many of the risks and penalties and deal with payment delays, making it difficult and expensive for us to get bank financing.

“I think what the PMO also wants to do is create standard contracts on engaging MDOs where it is clear who bears which risk, who is responsible for land acquisition, relief and rehabilitation, etc.”

Large MDOs today include BGR Mining and Infra Ltd, Adani Enterprises, Thriveni Earthmovers, Dilip Buildcon, Sainik Mining and Allied Services, Sical Logistics, Monte Carlo and Ambey Mining.

The NDA government is keen to step up India’s coal production. Despite having the world’s fourth largest coal reserves, India imports around 235 million tonnes (mt) of coal a year. The government estimates that of this, at least 135 mt can be substituted by mining more locally. The Centre had set a mining target of 1.5 billion tonnes of coal by 2020, which was missed.

In May, along with opening up commercial coal mining, promoting coal gassification and auctioning 50 new coal and 500 mineral blocks as part of the covid-19 reforms package, the government also promised an investment of Rs50,000 crore to create transportation infrastructure for evacuating 1 billion tonnes of coal from Coal India Ltd’s mines.