✅ Escrow Fund for Scientific Mine Closure | Explained for UPSC & State PCS

28 October 2025

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📌 Introduction

The Ministry of Coal has recently proposed an Escrow Fund system under draft guidelines for mine closure planning in underground coal and lignite gasification projects.
This step aims to ensure scientific, safe, and environmentally responsible mine closure in India.

🏦 What is an Escrow Account?

An Escrow Account is like a secure locker handled by a neutral third party.
Money kept in this account is released only after:

✔ Conditions are fulfilled
✔ Proper approvals are given
✔ Legal guidelines are met

It prevents fraud, misuse, and non-compliance.

🔐 Who Manages the Escrow Fund?

The Coal Controller Organisation will oversee the escrow funds for mining companies.

🌱 Why Escrow for Mining?

In India, many mines are abandoned after extraction, causing:

Land degradation
Water pollution
Soil erosion
Illegal mining operations

The escrow system forces companies to collect money beforehand for environmental restoration.

📜 Key Features of the Escrow Fund Proposal

✅ 1. Annual deposits required

Mining companies must deposit money every year until mining ends.

✅ 2. Base rate fee

₹ 50,000 per hectare
(Revised every 5 years based on WPI – Wholesale Price Index)

✅ 3. Mandatory scientific closure

Funds will be released only after proper reclamation and restoration.

✅ 4. Penalties for delay

Fines will apply if companies miss deposits.

✅ 5. Withdrawal of mining permission

Severe violations can lead to cancellation of mining license.

🧾 Assets Allowed in an Escrow Account

Funds can include:

Money
Securities
Financial instruments
Escrow Funds

All kept securely until closure obligations are met.

🌍 Benefits of Escrow Fund System

Promotes sustainable mining
Controls environmental damage
Prevents abandoned open pits
Secures funds before damage is done
Encourages legal compliance
Protects public and ecological safety

🔄 How Does It Work?

Company gets mining permission
Deposits yearly into escrow
Mine reaches closure stage
Government verifies restoration work
Funds are released only after approval

💣 The Problem It Solves

India faces:

Illegal coal sales
Unsafe leftover mines
Groundwater contamination

Escrow forces companies to clean up responsibly.

📚 Relevance for UPSC / BPSC

This topic connects with:

Environment & Ecology
Economy (WPI component)
Governance & Regulation
Science & Tech (gasification)

🆚 Escrow Fund vs. Normal Account

Feature	Normal Account	Escrow Account
Control	Direct holder	Third party
Release conditions	Flexible	Strict & legal
Purpose	General use	Contract compliance

🧠 Example (Very Simple)

A mining company extracts coal from a 100-hectare area:

Deposit = 100 × ₹50,000
= ₹50,00,000 annually

This money cannot be used until proper closure is completed.

❌ What If the Company Defaults?

Penalty charges
Legal action
Mining permission revoked

🔍 Frequently Asked Questions (FAQ)

Q1. Why do mining companies need an escrow fund?

To ensure environmental restoration after mining ends.

Q2. Who manages the escrow?

The Coal Controller Organisation.

Q3. How much must companies deposit?

₹50,000 per hectare (base rate).

Q4. When is money released?

After scientific mine closure verification.

Q5. Why linked to WPI?

To adjust for inflation.

🧾 PYQ-Style Practice Questions

✅ UPSC Prelims MCQ

Which of the following statements are correct?

Escrow accounts are held by a neutral third party.
Mining companies must deposit funds annually for mine closure.
The deposit rate is linked to the Wholesale Price Index.

Options:
A. 1 only
B. 1 and 2
C. 1 and 3
D. All of the above ✅

✅ BPSC Mains Question (150 words)

Explain the concept of an escrow fund and critically analyse its role in scientific mine closure in India.

🏁 Conclusion

The escrow fund is a strategic policy move ensuring mining companies:

Respect environmental laws,
Follow safe closure procedures,
Restore land responsibly after mining.

It strengthens environmental governance in the coal sector.