In August/September, 2014 when Supreme Court (SC) declared all 218 coal blocs allotted since 1993 ‘illegal’ followed by de-allocation of ‘all’ except 4 [2 of these are with PSUs viz., NTPC and SAIL and other 2 are for ultra mega power projects (UMPP) given under competitive bidding], this led to a hue and cry.
The associations representing the beneficiaries of illegal allotments – in their presentations before SC – submitted that investment to the tune of about Rs 250,000 crores in development of coal mines and another Rs 400,000 crores in setting up of end use projects viz., power, steel, cement etc would be at risk.
Commentators too joined the chorus opining that this will affect availability of domestic coal and increase in imports at higher prices affecting viability of end use projects. They alluded to surge in non-performing assets (NPAs) of banks and also apprehended debilitating effect on growth that has just begun to revive under the influence of a stable and decisive government.
All these alleged consequences were blown out of all proportions and have little relevance to realities on the ground. An objective and dispassionate analysis of facts would reveal that this was figment of one’s imagination. Let us take a look at some relevant facts.
Of 218 coal blocs with in place reserves of 45 billion tons, only 42 are operational. For the rest 176, the allot tees made no efforts to develop them. Some allot tees have blamed this on delays in getting environment and other approvals. This is fallacious and is merely an attempt to camouflage their own wrongful acts.
Investigations by agencies including by CAG have revealed that the allot tees merely sat on the mines acquired from a process of allocation which was conducted in an ‘arbitrary’ and ‘opaque’ manner (as stated by the apex court itself). They were prowling for opportunities to make a quick buck vide rent seeking.
Many of them had no experience in coal mining or in end-use industries and several allot tees had close to zero net-worth. This only reinforces the belief that they were not genuine investors and their sole intent was to exploit their connections with then political establishment for personal aggrandisement.
If, status quo had continued, coal lying in such mines would have remained un-exploited for an indefinite period of time. Cancellation of such allotments and re-allocating to genuine players would help in its fruitful exploitation. Far from alleged negative impact, the verdict of apex court will help in spurring investment and growth.
In regard to 42 operational mines too, the fear of any disruption in production and supply to end-use sectors is unfounded. The order of the apex court and fool proof arrangements made by government will ensure that such a possibility is nipped in the bud and un-interrupted supply is maintained.
As per court order, original allot tees will continue to be in possession these mines till March 31, 2015 subject to their paying penalty (@ Rs 295 per ton as decided by court). During the 5 month period till then, government will conduct a rule based, open and transparent auction process to allocate cancelled mines to new allot tees.
In the first phase of bidding that will be open to users in power, cement and steel sectors, 21 mines will be re-auctioned (other 21 mines are being handed over to government entities who were the original allot tees). If the winner of any of these mines is the original allot-tee, that will be an ideal scenario. In case the winner is different, government will ensure a smooth transition by ensuring that the existing owner is fully compensated for his investment before the operations are handed over.
To determine the compensation amount, government has already constituted a committee under former chief vigilance commissioner (CVC) Pratyush Sinha to value the assets viz., tangible assets for coal mining operations, fixed installations and land. The panel would also carry out assessment of the liabilities associated with the operations of the mines. It will submit its recommendations by November 10.
The auction is slated to commence in December and entire exercise will be successfully completed by end of this fiscal i.e., March 31, 2015. In a subsequent phase, government will take up auction of remaining 176 blocs which have not been put in to operation thus far. That process should bear fruition within an year or so.
Thus, latest by April, 2016, government would have laid the foundation for orderly exploitation of 45 billion tons coal reserves by legitimate companies. Even more crucial, a rule based and fully transparent dispensation would be available to guide all allocations in the future putting an end to a discretionary and arbitrary committee system for ever.
There is no basis for banks to worry about their loans turning NPAs. For operational mines, so long as production is maintained leading to cash generation from business, allot tees – original or new – should be in a position to service loans. To the extent money is locked with allot tees who did not develop and may have diverted to other uses, banks must not show any leniency in recovering as per law.
Critics argument that payment for acquiring bloc through auction will lead to increase in price thereby affecting viability of end use industries is also flawed. Earlier, allot tees were getting coal from captive mines at a fraction of price it is available from Coal India Limited (CIL) and even lower vis-a-vis price of imported coal. The equation will not change much under the new dispensation.
On the other hand, government’s decision to transfer the proceeds from auction to concerned states where the mines are located will improve resource position of latter. This will come handy for laggard states like Orissa and Chhattisgarh etc in financing development activity and boost their GDP.
Government has also taken a major step forward towards reforms by opening ‘commercial’ mining to private sector. A suitable provision has been made in the ordinance promulgated on October 21, 2014. It is also examining various options to restructure CIL so that it can deliver more by maximizing production.
To sum up, armed with an over arching order of Supreme Court, Modi government has undertaken a major cleansing of the much maligned coal sector to make it healthy and vibrant so that it can support India’s movement on a higher growth trajectory.