The Association of Power Producers (APP) has also expressed reservations over the government's proposed policy to transfer excess coal produced at a mine to Coal India's nearest subsidiary.

“The need of the time is to have an enabling policy framework for accelerating and augmenting coal production," Ashok Khurana, Director General, APP said in a letter to Coal Minister Sriprakash Jaiswal.

The Coal Ministry has sought feedback from all stakeholders regarding the policy of disposal of surplus coal from the mines.

“The above policy does not provide incentive for large players to enter mining, utilise world-class technologies and increase their mining capacities, since the lower cost of production and notified Coal India price would be highly inadequate to encourage investments in the sector," the letter said.

“With the massive gaps in the demand and supply of coal, it is imperative that the private sector is encouraged to enter the coal mining sector and adequate benefits are provided to investors," it said.

As per the Mines and Mineral Development and Regulation (MMDR) Bill, 2011, an annuity of 26 per cent of the profit after tax accrues to the local community to the persons holding occupation of the land or traditional rights of the surface of the land.

“By providing the entire surplus coal at lower of cost price and CIL notified price, there would be extremely low contribution to local society, which would defeat the purpose of MMDR Bill 2010," the communication added.

The royalty would be considerably reduced due to the low cost of coal produced and state revenues would be affected.