The Coalgate Concern

By: Staff Reporter
Coal blocks were allotted to private companies for captive mining through a 1993 amendment to the Coal Mines Nationalisation Act (1973). However, the CAG found that the blocks were not allotted in a transparent manner, neither had the companies begun production.

India has one of the biggest coal reserves in the world, ranking only after China and the United States. As of April 1, 2014 India’s reserves were estimated at a total of 301.56 billion tonnes by the Geological Survey of India (GSI). Of this, ‘prime’ coking coal stood at 5.313 billion tonnes, medium and semi-coking coals amounted to 28.76 billion tonnes, non-coking coals stood at 266 billion tonnes and tertiary coal at 1.49 billion tonnes.

More than half of India’s commercial energy requirements are met by coal. As per the Coal Mines Nationalisation Act, 1973, coal belongs to the people of India, and the Government of India owns all the coal blocks. Coal mining thus could be done either by a governmental undertaking or any government company, that is, a company where the government has a 51 per cent share. However, an amendment in the Act in 1993, allowed coal blocks to be allotted to private companies for captive mining for power, steel and cement production.

Allocation of coal blocks

In June 2004, the Coal Ministry proposed that coal blocks which had thus far been allocated for free, be auctioned for the highest price possible. The Comptroller and Auditor General’s (CAG),‘Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production’, Report No. 7 of 2012-13, found that the government had failed to introduce the auction route, though it could have done so as early as 2006, causing of approximately Rs 1.86 lakh crore loss to the public exchequer.

The Scam

The CAG further found that the allocation of coalblocks to private players had been undertaken in a non-transparent manner. It also found that most companies had not begun production at all, and were in no hurry to do so, thus adversely affecting the availability of coal.

The Audit revealed that as of 2011, only 28 out of 86 coal blocks allotted had started production. Similarly, production from operational mines was only 34.64 million tonnes, when the targeted output was 73 million tonnes as per the CAG’s Performance Audit. Very obviously, the private players had no incentive to begin production immediately, as they had received the coal blocks for free. In addition, the government had failed to enforce penalty for non-production.

Coal Auctions

Following the Supreme Court’s decision to cancel the 204 coal blocks allocated between 1993 and 2009, the new National Democratic Alliance Government stepped in and sanctioned the Coal Mines (Special Provisions) Bill, 2015. The Bill consents commercial mining and auction of these ready-to-operate blocks.

The government also claimed that state governments stand to make humongous profit from the coal blocks auction—much more than the exchequer lost because of arbitrary distribution of blocks by the previous government. In a feature published on April 21, 2015, Business Standard claimed that according to their analysis, the auctions could fetch a potential revenue of INR 6,284 crores to the coal bearing states, once all the auctioned blocks begin production.

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Fig.1: Coal Enactments Down the Ages

During the first round held between 14 and 22 February, the government successfully auctioned 19 blocks under the under Schedule II (already in production) class. The auction, however concluded with 15 blocks as four blocks came under the scanner for receiving low bids. Successful bidders included industry majors like Reliance Cement, GMR Chhattisgarh, Hindalco, Sunflag Iron and Steel, Jaiprakash Associates, Jaiprakash Power Ventures, OCL Iron and Steel, Bharat Aluminium, Essar Power MP, Jindal Power and UltraTech Cement. Round two was held between 4 and 9 May which resulted in the auctioning of 14 blocks (schedule III).

The government earned a whopping 4 lakh crores from the auction. Of the 33 blocks put up for auction, 29 have been successfully auctioned and another 38 allotted to state owned entities (Hindu Business Line, April 26, 2015). Coal secretary, Anil Swarup announced in a statement to the Press Trust of India on April 20, 2015 that the third round of bidding for 23 mines, shall commence from May 2015.

In the meantime, India’s coal import statistics witnessed a massive 33.5 per cent increase in the last fiscal year. Official data enumerate that India imported 168.4 million tonnes in 2013/14, while mjunction, pioneers in e-auction services, put the figure at 181.58 million. The rise is due to fall in the international prices which experts colligate to lower purchases by China.


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