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Coal mining: What next after SC decision to cancel blocks

The new unit cost per tonne of mined coal is going to be higher than the previous method, but would still be a lot cheaper than imported coal or obtaining supplies from Coal India. Also in the e-auction, govt need to consider giving a right of first refusal to present block owners

 

If there is reward and a record to be registered for the longest whistle blower in the world, perhaps it should only go to one deserving person, a member of Parliament (MP) from Bharatiya Janata Party (BJP), Hansraj Ahir, who represents Chandrapur constituency in Maharashtra. According to the press reports available, he appears to have stated: "Since 2006, I regularly followed the matter with the Centre and argued the coal blocks allocation were illegal. It was nothing but the loot of the country's natural resources. In my communications to former Prime Minister Manmohan Singh, Coal Minister, I made a strong case for the allocation of coal blocks through auction. However, the UPA government never responded positively".

 

MP Ahir is reported to have said: “that the Supreme Court's verdict has vindicated his stand that the allotments were illegal and done in an arbitrary fashion."

 

It may be recalled that the Supreme Court's bench consisted of Chief Justice RM Lodha, Justices Madan B Lokur and Kurien Joseph. The Bench cancelled 214 coal block allocations and permitted only four, one each to NTPC, SAIL and two to Reliance Power, all covering ultra mega power projects (UMPPs). The rest stood cancelled but were given time to complete the process of handover on or before 31 March 2015, to state-run Coal India Ltd (CIL).

 

Additionally, all these coal block allottees were to pay a penalty of Rs295 per tonne of coal mined and, fortunately, the verdict did not prevent them from participating in the auction process that the government may employ to dispose off these blocks after 1 April 2015. In the interim period, the "owners" of the blocks were permitted to continue their mining operation, subject to the penalty of Rs295 per tonne imposed. These mines account for about 10% of the annual production of CIL, of roughly 50-53 million tonnes.

 

Apart from private companies, such as Bhushan Steel, Electrosteel, Rungta Mines, Hindalco, Adani Power, CESE, Jan Infrastructure, Monnet Ispat, Jindal Steel & Power, Gagan Sponge and Strategic Energy, there were many others from various public sector organisations. Some of the public sector units (PSUs) had made arrangements with private mining companies to operate blocks allocated to them.

 

Even though the previous government had made allocation of these coal blocks, due to the inadequate supplies from Coal India, India's sole and largest supplier, imports had to continue, and the last fiscal saw imports of over 168 million tonnes of coal valued at Rs95,000 crore! And yet, we have had power outages and perennial shortages of electricity supplies in states, where thermal based power was generated.

 

The three-judge bench, headed by Chief Justice RM Lodha has ordered that Coal India take over the projects once these are cancelled and manage them till the reallocations are made. He is said to have stated that "breathing time is required to the allottees to manage their affairs on the cancellation of the coal blocks".

 

The apex court has also negated the apprehension regarding the capacity of Coal India, "that CIL is inefficient and incapable of accepting the challenge, as submitted by the learned counsel, is not an issue at all. The Central government is confident as submitted by the learned Attorney General that CIL can fill the void and take things forward" said the Supreme Court in its judgement on the cancellation of the blocks.

 

The companies concerned, who have lost the coal blocks, will also have to pay the penalties "within a period of three months and in any case on or before 31 December 2014”. The only silver lining is that, if and when these blocks are auctioned, the Supreme Court has been kind in not preventing these block holders from participating to secure them back!

 

There are some relevant facts that one needs to note: that the average cost of extracted coal from the captive mines varies from Rs600 to Rs800, whereas the e-auctioned coal supplied by 'Coal India costs Rs2,200 per tonne as against the imported variety at Rs4,000. Therefore, the economies of scale make a captive mine most viable under the circumstances.

 

In the changing circumstances, what are the steps that need to be taken urgently? Can the Government speedily organize an auction, bearing in mind that it took almost nine months to arrange for auctioning 122 licences after the Supreme Court cancelled the 2G telecom licences in February 2012? Should the government fix a base price for the auction or opt for a revenue sharing mechanism? Can they organise a suitably worded tender document so as to avoid any complications in the future?

 

A team of legal experts can easily work on the basis of the 2G document to prepare a tender, with suitable modification. This can be made public in 60-90 days time, followed by 30 days for actual tendering, 30 days for study and finalisation. In fact, if these are planned and done on a priority scale, auctions can be completed in such a manner so as to handover the mines in April 2015 itself! This could be also achieved easily, if the tender is only open to the current holders, who have "lost" the block, by virtue of the Supreme Court's verdict, and all others who are directly in need of linked fuel supplies.

 

If such a dynamic move is made, what can the Government expect? The "current" block owners can come to an "understanding", in the cartel fashion, when it comes to bidding, so that each of them, who have supposedly "invested" huge sums in each of the blocks, can do their best to salvage their "assets" and "investments", so as "retain" the block. We must remember that most of them may have "incurred" heavy investments in building permanent infrastructure facilities, obtained mining machinery and other essential equipment in the mines that they currently "own" and fair chance needs to be given to them to "recover" such costs.

 

Conditions such as the "successful" bidder must carry on the mining operations, and not sub-let to others; consume the mined coal themselves and excess produced if any, should be made available to a central pool controlled by CIL, and undertake NOT to import any coal would probably make the whole exercise workable and sustainable.

 

Government would do well to accept a flat rate on the coal mined, besides the usual terms of royalty. Efforts should also be made to ensure that the wage earners, who will actually be involved in mining operations, are paid fair wages and social obligations are met by the owners.

 

When tenders are opened, a right of first refusal should be given to the present block owners as this is one way of getting the confidence and salvaging the situation. The government must remember that, because of the changing circumstances, the new unit cost per tonne of mined coal is going to be higher than the previous method, but still a lot cheaper than imported coal or even obtaining supplies from Coal India. The new allottees, once the auction is complete, may also be encouraged to invest in the Railways for ensuring movement of cargo from their own pitheads to site, and if any of them should turn out to be power generators, they should be encouraged to set up power plants at the site.

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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