CAG

Vivek Kaul

“Every action has an equal and opposite reaction,” states Newton’s Third Law of Motion. The law holds in political and economic space as well, the only difference being that sometimes the gap between the action and the reaction can be as long as two decades.
The Coal Mines (Nationalisation) Act 1973 was amended with effect from June 9,1973. The Economic Survey for 1994-95 points out the reason behind the decision. “In order to encourage private sector investment in the coal sector, the Coal Mines (Nationalisation) Act, 1973 was amended with effect from June 9, 1993 for operation of captive coal mines by companies engaged in the production of iron and steel, power generation and washing of coal in the private sector,” the survey points out.
The reason for the change was simple. The government owned Coal India Ltd wasn’t producing enough coal to meet the growing energy needs of the country. The total coal production in the country in 1993-94 stood at 246.04million tonnes having grown by 3.3% from the last financial year.
What also did not help was the fact that there were huge time and cost escalations on the newer projects to mine coal. As the 1994-95 economic survey put it “As on December 31,1994, out of 71 projects under implementation in the coal sector, 22 projects are bedeviled by time and cost over-runs. On an average, the time overrun per project is about 38months.There is urgent need to improve project implementation in the coal sector”.
This change made nearly two decades ago allowed the government to give away coal blocks free to both government owned as well as private sector companies. The repercussions of this move are being felt now with the Comptroller and Auditor General(CAG) of India coming out with a report and putting the losses of giving out coal mines for free at Rs 1,86,000 crore. It also has led to a political deadlock in the functioning of the Parliament.
So what happened in between 1993 and 2011?
Between 1993 and 2003, the government wasn’t in any hurry to give away mines free. In a period of over ten years, the government gave away around 41 blocks (17 to private sector companies and 24 to government owned companies) for free. Even 2004 was a slow year with only 5 blocks being given away for free.
But come 2005 and the government was suddenly in a hurry to give away blocks for free. Twenty four blocks were given away during the course of the year. This continued over the next few years. Between 2006 and 2009 a total number of 145 coal blocks were handed for free to private sector companies, government companies and ultra mega power projects. The total geological reserves of these coal blocks amounted to around 40.9billion tonnes. As the CAG report points out the total geological reserves of coal in India, as on April 1, 2011, were at around 285.9billion tonnes. Hence, 14.3% of the total coal reserves in the country were given away by the government for free. For most of this period between 2006 and 2009, the Prime Minister Manmohan Singh doubled up as the coal minister as well.
Why was there a sudden increase in giveaways post 2005?
Data from ministry of coal shows that the total production of coal in India in 2005-2006 stood at 437.3million tonnes. As pointed out earlier the production in 1993-1994 was 246.04million tonnes. Hence over a period of 12 years, the coal production had grown at the rate of 4.9% per year on an average. Of the 437.3million tonnes produced in 2005-2006, Coal India Ltd produced around 348million tonnes or around 80% of the total produce.
The trouble was that the economy was growing at a much faster rate than the rate of coal production. Hence the total coal demand could not be satisfied by the coal being produced by Coal India and other few government owned companies.
This meant coal had to be imported. The amount of coal imported doubled from 19.7 million tonnes in 1999-2000 to 38.6million tonnes in 2005-2006. In 1999-2000 these imports cost Rs 3,548 crore. In 2005-2006, the coal imports cost Rs 14,910 crore. Hence, even though the amount of coal that the country imported had doubled, the total amount paid for it had gone up by 4.2 times.
This was primarily because the price of coal started to shoot up from mid 2003 onwards. The price was a little over $20 per metric tonne of coal at that point of time. It shot up to around $40 per metric tonne in mid 2005 and kept rising after that. Prices shot up to around $190 per tonne internationally in mid 2008. As can be seen from the following table, the import of coal kept going up over the years, but the money paid for it went up at a much faster rate.
The conclusion that one can draw from this is that before 2004 it was cheap for a company to import coal because international coal prices were low. But after that things changed and it made more sense for companies to have direct access to coal.
Coal Imports In Million tonnes In Rupees crore
1999-2000 19.7 3548
2000-2001 20.9 4053
2001-2002 20.5 4536
2002-2003 23.3 5028
2003-2004 21.7 5009
2004-2005 29 10266
2005-2006 38.6 14910
2006-2007 43.1 16689
2007-2008 49.8 20738
2008-2009 59 41341
2009-2010 67.8 NA
Source: Provisional Coal Statistics 2009-2010, Coal Control Organisation, Ministry of Coal
Coal India has not been able to expand production fast enough to meet this growing need for coal in India. Between 2004 and March 31, 2012, the production of coal has increased by just 65million tonnes to 436million tonnes. This means an increase in production at the rate of 2.3% per year on an average, over the last seven years.
Year Production (in million tonnes)
2011-2012 436
2010-2011 431
2009-2010 415
2008-2009 400
2007-2008 372
2005-2006 348
2004-2005 371
Average 396
Source: Coal India Ltd
Hence there was a need to look beyond Coal India. This in a way explains why the government gave away 145 coal blocks free between 2006 and 2009. But all this was of not much use.
The government’s decision to give away coal blocks free in the hope of increasing coal production hasn’t gone anywhere. As per the CAG report, as on March 31, 2011, eighty six of these blocks were supposed to produce around 73million tonnes of coal. Only 28 blocks have started production and their total production has been around 34.6million tonnes, as on March 31,2011.
Why expanding coal production is very difficult?
The root of the decision to give away coal blocks for free has been the inability of Coal India to expand production at the rate which meets the growing coal demands of the country. There are several reasons for the same. These reasons will apply equally even to the private sector companies and government companies which have got coal blocks for free but have been unable to produce coal.
A large part of the coal reserves in India are in the naxal dominated areas of Chattisgarh, Jharkhand, West Bengal, Odisha and Maharashtra. So operating in these regions isn’t really easy. Over and above this, a lot of reserves are in forest areas. Mining in these areas needs clearance from the state governments and that is not easy to come. The overall environmental clearance comes from the Ministry of Environment and Forests and in this day and age of environmental activism, this clearance also takes time.
But the biggest problem for Coal India has been land acquisition. There are several reasons for the same. Over the years the government of India has forcibly acquired land for a lot of its projects and paid peanuts in return to the landholders. In some cases in the state of Jharkhand, money has still not been paid to original landholders even decades after the land was acquired to set up a big public sector unit.
There is a very little attempt made to rehabilitate the people whose land is being acquired. This writer has seen homes that were built by the Central Coalfields Ltd (a 100% subsidiary of Coal India which is headquartered in Ranchi and operates coal mines in the state of Jharkhand) for people whose land was acquired to mine coal and they were unlivable to say the least. Due to these reasons people don’t want to part with their land.
Also acquisition of land requires coordination with the local District Commissioners (DCs). The DCs are usually so overburdened with work that land acquisition isn’t really a top of agenda for them. Over the years the issue has become so politicised that bureaucrats like to stay away. The state governments are not interested because by forcibly acquiring land they are likely to lose votes.
On occasions even when the land is acquired the government can re-allocate the land for some other use like building a railway line. So the main thing to get the coal production going in this country is to have a proper land acquisition process. People whose land is acquired need to be properly compensated and rehabilitated. They should be willing to part with their land.
To conclude
Several suggestions have been made for setting the prevailing situation right. Commentators have asked for setting up of another government owned coal company. Several others have asked for auctioning of the coal blocks and allowing private sector companies to operate freely to mine coal.
All these are good suggestions in their own right but they won’t work unless the land acquisition process is cleaned up. If that does not happen coal production in India cannot be increased fast enough to meet all the emerging demand. And that is the main learning that the government needs to take from what is being called Coalgate.
(The article originally appeared in The Pioneer on September 9,2012. http://www.dailypioneer.com/sunday-edition/sundayagenda/cover-story-agenda/93154-the-dirty-business.html)
(Vivek Kaul is a Mumbai based writer and can be reached at [email protected])