The union cabinet on Tuesday ushered in a new era for country's energy sector by opening up coal mining to the private sector firms for commercial use. The Cabinet Committee on Economic Affairs approved the methodology for auction of coal mines for sale of coal, the most ambitious coal sector reform since its nationalisation in 1973. The move is likely to challenge state-run Coal India's monopoly.

Announcing the decision taken by the CCEA, Coal and Railways Minister Piyush Goyal said the reform is expected to bring efficiency in the coal sector by moving from an era of monopoly to competition. India is said have coal reserves of up to 300 billion tonnes.

Methodology gives highest priority to transparency, ease of doing business and ensuring that natural resources are used for national development, a government note said.

"It will increase competitiveness and allow the best possible technology into the sector. The higher investment will create direct and indirect employment in coal bearing areas, especially in the mining sector and will have an impact on economic development of these regions," Goyal said.

The move will also lead to greater energy security as 70 per cent of India's electricity is generated from thermal power plants. This reform will ensure assured coal supply, accountable allocation of coal and affordable coal leading to affordable power prices for consumers, a government release said.

While coal mines were till now auctioned for captive power generation, they will now be sold in an e-auction to private domestic and global miners.

The government said the entire revenue from the auction of coal mines for sale of coal would accrue to the coal bearing states. "This methodology shall incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants including tribals. States in eastern part of the country will be especially benefited," it said.

Goyal said the move will help ramp up domestic production and reduce dependence on imports, which in turn will save the country precious foreign exchange. The move will also help in bringing down power tariffs, he said.

West Bengal, Odisha, Jharkhand, Chhattisgarh, and Madhya Pradesh are the major coal bearing sates. India is believed to have reserves of 300 billion tonne.

When asked how the move would impact Coal India, Goyal said competition would help the state-owned miner.

The Supreme Court had in September, 2014 cancelled 204 coal mines allocated to the different Government and private companies since 1993 under the provisions of Coal Mines (Nationalisation) Act, 1973.

To bring transparency and accountability, the Coal Mines (Special Provisions) Bill 2015 was passed by the Parliament which was notified as an Act in March, 2015. Enabling provisions have been made in the Coal Mines (Special Provisions) Act, 2015 for allocation of coal mines by way of auction and allotment for the sale of coal.

CIL currently accounts for over 80 per cent of domestic coal output.

with PTI inputs