The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister Shri Narendra Modi, has given its approval for allotting coal mines to Central and State PSUs for sale of coal specially to Medium, Small and cottage industries under the provisions of the Coal Mines (Special Provisions) Act, 2015.

This shall also enhance domestic production of coal to meet the demand of national economy thereby reducing import. The coal bearing States shall be getting additional revenue from such coal mines equal to the amount of royalty on the quantity of coal produced on a monthly basis during the lease period/life of the mine as well as one time upfront payment which is 10 percent of the intrinsic value of coal in the mine in three instalments in the first year of allotment.

It is expected that the incremental coal produced from such coal mines would cater to the unmet demand of the coal in the country especially of medium, small and micro industries and bridge the gap between demand and supply considerably.

Background:

The demand for coal in the country is much higher than the current level of production/supply. During the year 2014-15, as against a total consumption of 825.6 million tonnes (provisional), the domestic production of coal was 612.4 million tonnes (Provisional). The gap between consumption and domestic supply is met through imports. Due to sustained efforts for increase in domestic production; import of coal which was showing positive growth since 2011-12, registered a negative growth of 12.2 percent during April-November, 2015. However, the gap between the demand and the supply continues to be, large.

Upfront payment methodology for coal allotments requires staged instalments and monthly royalty to states to boost PSU coal supply. Methodology prescribes financial terms for allotting coal mines to PSUs under the Coal Mines (Special Provisions) Act, 2015, requiring a one time upfront payment based on the mine's intrinsic coal value payable in staged instalments in the first year, and continuing monthly royalty payments to coal bearing States on quantity produced during the lease; the approach aims to set a reserve price and to direct production to meet domestic demand, particularly for medium, small and cottage industries.