FDI cap for coal mining set to go

Steel, cement firms to benefit.

The government is planning to remove the cap on foreign investment in coal mining for steel and cement companies.

While steel and cement companies are allowed only up to 74 per cent foreign direct investment in coal mining, power companies can have 100 per cent equity investment.

Officials told Business Standard that coal mining was a politically sensitive issue but an informal understanding with the Left parties had been reached.

"The department of industrial policy and promotion had mooted the proposal, which was agreed to by the coal ministry. A formal Cabinet approval is awaited," said an official, adding that the move would help attract foreign investment in vertically integrated steel and cement companies.

The foreign investment cap of 74 per cent in precious stones and diamond was also likely to be revised, an official said.

The Coal Mines Nationalisation Act in 1973 had blocked private sector funding in coal mines.

However, an amendment in 1993 allowed private investment in captive mining for the generation of power, washing of coal and other use as notified by the government, including iron and steel.

Cement was added to the list in 1996. A screening committee grants the rights for captive mining after the proposals are forwarded by the concerned ministries.

"Indian coal and steel companies want to have captive mines in countries like Indonesia and Australia so we cannot resist the removal of FDI cap," said a senior Coal India functionary.

The government has so far allotted 147 captive blocks to various companies. It plans to allot another 35 with total coal reserves of 6162 million tonne in the next couple of weeks.

While the nationalisation Act had a provision for allocation of isolated and remote coal blocks to private parties, no block was allocated till last July.

The existing policy also allows for cancellation of the allocation in the event of allotees do not make any progress on development of mine and end use projects. The government recently cancelled allocation for three such blocks.

Opening up

• Steel and cement companies are allowed only up to 74 per cent FDI in captive coal mining
• Power companies, on the other had, have been allowed 100 per cent equity investment
• Since Indian coal and steel companies are seeking captive mines abroad, the government is forced to rethink