Coal auction: Seven reasons why Vinod Rai was right about Coalgate

Inclusive Governance: Enabling Capability, Disabling ResistanceLawyers who become politicians are very good at giving things a good spin.
The Congress led United Progressive Alliance(UPA) was full of such individuals, who could provide a good spin 24/7 to various things that were going wrong during the regime.
The biggest spin came when the Comptroller and Auditor General(CAG) Vinod Rai exposed the coalgate scam and estimated that the losses to the nation were around Rs 1,86,000 crore. (You can read how the number was arrived at here).
Various Congress politicians worked overtime to suggest that there were no losses. The then finance minister P. Chidambaram had said: “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued.” Other leaders suggested that the CAG Rai(who former bureaucrat turned politician N.K.Singh labelled as the bhumihar from Ghazipur) had political ambitions.
Manish Tewari, the Congress leader who during his heydays could have an opinion on anything and everything, had said: “R-virus has infected the Indian growth story. The R-virus stands for a phenomenon were responsible individuals decide to become loose cannons.”
On another occasion, Tewari had commented that: “When individuals decide to go rogue, institutions suffer. That possibly has the most detrimental effect on the India growth story.” Montek Singh Ahluwalia, the former deputy chairman of the now defunct Planning Commission, had claimed that “untrained staff [is] auditing CAG reports.”
Long story short—the official propaganda machinery worked overtime to discredit Rai. They told us time and again that giving away coal free was not leading to any losses. Even without getting into any technicalities, how can giving away something ‘free’ not lead to losses is not something that any of these politicians bothered to explain.
In the early 1990s, the government realized that enough coal was not being produced to meet the demand. Hence, it decided to amend the the Coal Mines(Nationalisation) Act with effect from June 9, 1993. This was done largely on account of the inability of Coal India Ltd (CIL), which produces most of India’s coal, to produce enough coal.
The idea, as the Economic Survey of 1994-1995 pointed out, was 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 amendment allowed companies which were in the business of producing power and iron and steel, to own coal mines for their captive use. Any excess coal that was produced had to handed over to the local subsidiary of CIL.
Using this amendment, the government gave away 204 coal blocks for free over nearly two decades. Most of these free coal blocks were given away between 2004 and 2011, when the Congress led UPA was in power (and that explains why the businessman turned Congress politician Naveen Jindal was the biggest beneficiary with nine coal blocks allotted to him). Nevertheless even by 2011-2012, these coal blocks produced only 36.9 million tonnes of coal. This amounted to around 6.8% of the total production of 539.94 million tonnes during the course of that year.
In August 2014, the Supreme Court cancelled the allocation of these blocks. The Screening Committee method used to allot blocks was not up to the mark, it suggested in the judgement. The coal blocks were allocated based on the recommendations of an inter ministerial screening committee.
As Rai writes in Not Just an Accountant—The Diary of the Nation’s Conscience Keeper “This committee was to scrutinize applications for captive mining and allocate coal blocks for development, subject to statutes governing coal mining, following which the coal minister would approve the allotment…The screening committee is expected to asses applications based on parameters such as the techno-economic feasibility of the end-use project, status of preparedness to set up the end-use project, past track record in executing projects, financial and technical capabilities of applicant companies and the recommendations of the concerned state governments and ministries.”
The Supreme Court judgement dated August 25, 2014, did not find this approach up to the mark. It pointed out that: “the entire exercise of allocation through Screening Committee route thus appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected.” The judgement further pointed out that “there is no evaluation of merit and no inter se comparison of the applicants.”
After the cancellation, the government decided to auction the coal mines. Over the last few days the government has been auctioning the first lot of these coal blocks. Fourteen out of the 19 blocks that are on auction have been sold till now, for a whopping Rs 80,000 crore.
What this clearly shows is that Vinod Rai was right about the losses all along. And it wasn’t just about the money. Here are seven reasons that justify that:

a) All the zero loss theories offered by the various Congress politicians were bogus. The government has already earned close to Rs 80,000 crore, which will be paid by winning companies over the years.
It needs to be mentioned that more than 200 coal blocks will be eventually auctioned. Imagine the kind of money we are talking about here.
A report in the Business Line points out that “according to government estimates, from the entire 204 blocks to be allocated/auctioned in phases, over Rs 15-lakh crore was expected to be garnered over the lifetime of the mines.” “But now we see this number could be higher,” a Coal Ministry official told the newspaper.
Interestingly, the CAG had said in its report that:  “A part of this financial gain could have been tapped by the government by taking timely decision on competitive bidding for allocation of coal blocks.”
b) Vinod Rai and the loss estimate of Rs 1.86 lakh crore made by the CAG, was very conservative at best. But accountants are expected to be conservative. The CAG worked with fairly conservative estimates on this front as well.
Typically extractable reserves are around 80-95% of the geological reserves of coal. The portion of the geological reserves that can be extracted are referred to as extractable reserves. As Rai writes in his book: “Audit based its computation on [the] conservative estimate of 73 million tonnes for every 100 million tonnes given in the GR [geological reserve]…Can audit be faulted if its computation was based on a conservative estimate of 73 per cent?…The extractable reserves…based on the aforementioned method, was found by the CAG to be 6282.5 million tonnes, which is mentioned in the report.”
Hence, only 6.28 billion tonnes of the 44.8 billion tonnes of geological reserves was assumed as extractable reserves while calculating the losses of the government. You can’t hold that against Rai. c) The ‘auction’ is a very clean way of doing things unlike the ‘behind the doors’ screening committee method. Further, there was no ‘fair’ way of going about allocation of coal blocks through the screening committee method. It went against the basic principle of equity.
Former coal secretary P C Parakh explains this in 
Crusader or Conspirator—Coalgate and Other Truths: “By the time I took charge of the ministry, the number of applicants for each block had increased considerably although still in single digits. I found a number of applicants fulfilling the criteria specified for allocation of each block on offer. This made objective selection extremely difficult.”
In fact in the years to come the situation became significantly worse. As Parakh writes: “According to CAG’s report, 108 applications were received for Rampia and Dip Side of Rampia Block [names of two coal blocks]. I found it difficult to make an objective selection when the number of applicants was in single digits. How could the Screening Committee take objective decisions when the number of applicants per block had run into three digits?”
Allocating blocks through an auction takes care of such issues.
d) By attaching a certain price to the coal block the government should be able to keep the non-serious players out. Take the case of the Rampia coal block mentioned earlier, where 108 applications were received. When something is available for free everybody wants it.
e) Also, once companies have to pay for a block, the chances are that they will try and ensure that they start producing coal as soon as possible. This was something that was not happening earlier. As per the 11th five year plan, which started in 2007-08, the production from the captive coal blocks was to expected to touch 111 million tonnes of coal per year by 2011-12. The captive coal blocks produced 36.2 million tonnes of coal during the course of that year. By 2016-17, the production of coal from these blocks was expected to touch 330 million tonnes. In 2013-2014, these blocks produced only 39 million tonnes. What this tells us is that many non-serious players had got the blocks as well.
f) Indian businesses have for too long been used to getting things for free, including coal. This has led to the misconception that thermal power is cheap, which is not. Once, the right price of coal is taken into account, other forms of generating electricity might start to look viable. And that will be good for the environment.
g) And finally, transparency is very essential whenever the government is selling a public asset. It goes a long way in controlling crony capitalism. Coal auctions are worth all the trouble just for this one reason.

The column originally appeared on on Feb 20, 2015

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek) 

Lessons from Coalgate: How to keep crony capitalists in check? Open up coal mining

coalVivek Kaul

In the recent past several columnist and experts have been critical of the recent decision of the Supreme Court to cancel allocation of 204 out of 218 coal blocks that had been allocated free of cost by the government for captive mining.
As economist Abheek Barua writes
in a column in the Business Standard “I have had a flurry of calls (anguished monologues in most cases) and noticed copious Facebook posts from fund manager friends from abroad expressing their concern over the Supreme Court’s cancellation of coal-block allocations.”
Similar arguments saying that foreign investors are worried have been made by several others. As Raghuram Rajan and Luigi Zingales write in a different context in
Saving Capitalism from the Capitalists “No one will have the incentive to undertake long term investment—whether in acquiring specialized skills or in building physical capital—when there is no clarity about what the rules of the game are.”
This is the core point of the argument being made against the Supreme Court decision on the coalgate scam. If we keep changing the rules of the game, foreign investors are not going to come, we are being told by the experts.
The question that none of these experts are answering is what should the Supreme Court have done, if not this? In its judgement the Supreme Court has said that the process of allotment of free coal blocks for captive mining through the Screening Committee route suffers from the “vice of arbitrariness”. The Comptroller and Auditor General (CAG) in its audit of the Screening Committee meetings had come to a similar conclusion. (To read
a detailed argument click here).
Given this, the Screening Committee route of allotment of coal blocks was non-transparent and opaque. There were other problems with it as well. Keeping this scenario in mind, the Supreme Court decided to cancel the allocation of coal blocks through this route.
And as far as foreign investors are concerned wouldn’t they want a process of allocation which is transparent, non opaque and based on objective criteria? Again the experts criticizing the Coalgate decision fail to answer this question.
Further, if the Screening Committee route of allocation of coal blocks was such a great method why did it not lead to a significant increase in the production of coal. Again no answers are offered by the experts on this question.
As per the 11th five year plan, which started in 2007-08, the production from the captive coal blocks was to expected to touch 111 million tonnes of coal per year by 2011-12. The captive coal blocks produced 36.2 million tonnes of coal during the course of that year. By 2016-17, the production of coal from these blocks was expected to touch 330 million tonnes. In 2013-2014, these blocks produced 39 million tonnes.
So why have these blocks not gotten anywhere around to producing the amount of coal they were expected to? Only 40 out of the 218 coal blocks allocated are currently producing coal. Given that they had got blocks for free, the companies seemed to be in no hurry to start production. That wouldn’t have been the case, had they paid for it in the first place.
Further, captive coal-mining has not succeeded anywhere in the world. As Partha Bhattacharya, former chairman of Coal India, writes in a column in The Indian Express “Captive end-users mining coal is not optimal. Nor is it known to have succeeded elsewhere in the world. Coal-mining has its own challenges and needs core competence, which the end-users are unlikely to possess.” In the Indian case the expertise required to get a coal mine up and running is largely limited to individuals working for Coal India. There is very little private expertise that is available and can be tapped.
The other big problem with captive mining is that coal blocks need to be artificially divided in order to be allocated to different companies. As Bhattacharya writes “In the process [of artificially dividing blocks, a huge quantity of coal is left out for creating barriers, which otherwise could have been mined out.”
This is something that former coal secretary PC Parakh also talks about in his book
Crusader or Conspirator—Coalgate and Other Truths: “Talibara II and Talibara III are sub-blocks of a contagious coal block that has no geographical or geological features warranting its division into two separate mines. This division was unscientific and was done many years ago when coal blocks were identified for allocation to private companies for private use…Such division of coal blocks leads to loss of sizeable quantity of coal at the barriers.”
Given these reasons Bhattacharya feels that blocks should “be merged to create larger blocks, separated by natural boundaries instead of coal barriers.”
Further, it is important that the government allows commercial mining of coal by companies other than Coal India. Given that expertise in India to set up and run a coal mine is limited it is important that we allow international companies to enter this sector. This will call for the amendment of the Coal Mines (Nationalization) Act of 1973.
Obviously this decision is likely to be opposed by political parties and trade unions. But it is worth remembering that Coal India now produces a major part of its coal through outsourced contracts. In fact, this is the major reason why the company has Rs 52,000 crore of cash on its books. And in that sense the sector has already been privatised. (
For a detailed argument click here).
The first thing opening up of the sector will do is to create some competition for Coal India. The captive block route of coal production does not do that at all. The companies have to pass on the excess coal that they produce and which does not get used up in the production of power, steel, cement, aluminium etc., to the local subsidiary of Coal India.
Between financial year 2009-2010 and 2013-2014, the total amount of coal produced by Coal India went up at the minuscule rate of 1.7% per year from 431.3 million tonnes to 462.4 million tonnes.
Some competition is likely to improve the productivity of Coal India.
As Swaminathan Aiyar writes in The Economic Times “In Australia, collieries produce 75 million tones per manshift (of eight hours) in open-cast mines and 40 tonnes per manshift in underground mines. Coal India averages barely 7 tonnes and 0.8 tonnes respectively…Coal India’s machines work 15 hours per day , against 22 hours per day in efficient mines.”
This is the major reason why the supply of coal in India has far outstripped its demand. If Coal India has to increase its productivity, some competition will do it no harm. As Bhattacharya puts it “Besides turning the current situation of acute coal shortage into one of abundance, competitive pressures are expected to bring prices well below the imported coal price, since the wage cost is likely to remain far lower in India than elsewhere, whereas productivity is expected to converge to international levels.”
In fact, if we had opened up commercial mining of coal in the 1990s, we wouldn’t have been suffering from the current shortage. As Parakh writes “Had we opened up coal mining to private sector for commercial mining, along with power sector, in the early 1990s, we would by now have at least half a dozen large coal mining companies in the private sector. This is what happened in the telecom sector. The country would not be facing huge shortage of coal and large outgo of foreign exchange on import of coal.”
To conclude, it is important that the sector be opened up for foreign companies as well, to keep India’s crony capitalists under check. As Rajan and Zingales put it “The most effective way to reduce the power of incumbents to affect legislation is to keep domestic markets open to international competition…Openness creates competitions from outsiders—outsiders that incumbents cannot control through political means.”
The article originally appeared on on Sep 30, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The coalgate mess: SC order shows UPA left our energy sector in a crisis

coal Supreme Court of India today delivered a judgement which is likely to have far reaching consequences on the energy scenario in India. In a judgement the court said “The allocation of coal blocks through Government dispensation route, however laudable the object may be, also is illegal since it is impermissible as per the scheme of the CMN Act (Coal Mines Nationalisation Act, 1973).
This essentially deemed illegal, the 195 coal blocks that had been allocated to public sector and private sector companies since 1993. These coal blocks had geological reserves amounting to 44.8 billion tonnes.
The decision to give away coal blocks free to the private sector was first made in 1993. The idea, as the Economic Survey of 1994-1995 pointed out, was 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 idea sounded “laudable” at least on paper but the trouble was that “no objective criteria for evaluation of comparative merits” of companies to which these coal blocks were allocated, was followed. As the Supreme Court judgement put it “The approach had been
ad-hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily.”
Most of these coal blocks were allocated between 2004 and 2011 when the Congress led United Progressive Alliance (UPA) was in power. Data from the Provisional Coal Statistics for 2011-2012 points out that 156 of the 195 mines with geological reserves amounting to 41.24 billion tonnes of the total 44.8 billion tonnes, were allocated between 2004 and 2011. Hence, nearly 94% of the reserves were allocated between 2004 and 2011. Interestingly, Manmohan Singh was the minister of coal for a large part of this period between 2006 and 2009. During this period a little over 78% of the total 44.8 billion tonnes of coal reserves were allocated.
While the approach was adhoc, the move could have still benefited the country, if the companies to whom the blocks had been allocated had started producing coal quickly enough. Interestingly, during 2011-2012, these coal blocks produced 36.9 million tonnes. This amounted to around 6.8% of the total production of 539.94 million tonnes during the course of that year.
For the current financial year (i.e. 2014-2015) these mines are expected to produce around 52.93 million tonnes. This will be out of a total produce of around close to 590 million tonnes. The demand for this year is expected to be at 787 million tonnes.
Interestingly only 31 out of the 195 coal blocks currently produce coal. What this tells us is that most of the public sector and the private sector companies to which coal blocks were allocated haven’t started producing coal as yet. A major part of these blocks as mentioned earlier were allocated between 2006 and 2009. Given that its been a while since these blocks were allocated, and hence its surprising to see that only 31 out of the 195 coal blocks are currently producing coal.
This tells us a lot about the ground level implementation challenges in India.
What remains to be seen is the impact this judgement will have. At close to 53 million tonnes in 2014-2015, the captive blocks will produce around 9% of the country’s total coal production. It has to be ensured that this produce is not suddenly taken out of the equation because that can have disastrous consequences for the energy scenario in this country.
The Supreme Court also pointed out that “it is directed that the coal blocks allocated for ultra mega power project (UMPP) would only be used for UMPP.” Data shows the total amount of coal expected to be produced by UMPP in 2014-2015 stands at two million tonnes. Adjusting for this, the amount of coal being produced by coal blocks stands at 50.92 million tonnes (52.92 million tonnes – 2 million tonnes).
If this coal were to be imported, assuming a landing price of Rs 3400 per tonne of coal (if its imported from Indonesia) this would mean an additional expense of Rs 17,300 crore per year. In this scenario, power tariffs will go up further. This will in turn impact inflation and economic growth.
But it is not just about power tariffs. Our ports will have a tough time handling this additional quantity of coal that will have to be imported. Over and above that, the Indian Railways is not exactly geared to be able to transport this coal from the ports to different parts of the country where it is required. The added infrastructure that will be required to handle the additional imports cannot be created overnight. Further, it is likely to drive up international price of coal, which has been falling lately. Also, it needs to be decided as to what happens to those coal blocks were coal is actually being produced. Do they get away just by paying a fine?
By following an arbitrary process of allotment of coal mines the various governments of the past (primarily the Congress led UPA) have left a huge mess which threatens the energy security of India. The Supreme Court judgement points out that “the explanation by the Central Government for not adopting the competitive bidding is that coal is a natural resource used as a raw material in several basic industries like power generation, iron and steel and cement.”
It goes on to add that “The end products of these basic industries are, in turn, used as inputs in almost all manufacturing and infrastructure development industries. Therefore, the price of coal occupies a fundamental place in the growth of the economy and any increase in the input price would have a cascading effect. The auction of coal blocks could not have been possible when the power generation and, consequently, coal mining sectors were first opened up to private participants as the private sector needed to be encouraged at that time to come forward and invest. Allocation of coal blocks through competitive bidding in such a scenario would have been impractical and unrealistic.”
The Central Government referred to in the judgement is the Congress led UPA government. The moral of the story here is that when you don’t allow the free market to operate, when things are not transparent, and when politicians decide on rules and framework as they go, the situation usually ends up in a mess.
The least that can be learnt from the Coalgate experience is that whenever the government decides to allocate natural resources from now on, it should do so in a transparent and rule based manner.

The article originally appeared on and on August 25,2014 
(Vivek Kaul is the author of the
Easy Money trilogy. He tweets @kaul_vivek)

Why giving away coal blocks for free was never a solution

Vivek Kaul
In the year 2011-2012 (i.e. the period between April 1, 2011 and March 31, 2012) India produced around 540million tonnes of coal. This was 1.36% more than the amount produced in 2010-2011 (i.e. the period between April 1, 2010 and March 31,2011).
Of the 540million tonnes Coal India produced around 436million tonnes or a little over 80% of the total coal produced in India. The remaining was produced by Singareni Collieries Company and a host of other small companies.
This production wasn’t enough to meet the demand for coal in India. Hence, India also imported 99 million tonnes of coal during the course of the year primarily from countries like Australia, Indonesia and South Africa.
The amount of coal, India has been importing has been growing significantly over the years (as can be seen from the table below). What also comes out clearly is that the amount paid for importing coal grew at a much faster rate than the amount of coal imported between 2003-2004 and 2008-2009. This was the period when the international prices of coal were rallying and touched $190 per tonne in mid 2008.
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 73.3 39180
2010-2011 68.9 41550
2011-2012 98.9 45723*
*from April-Oct 2011
Source: Provisional Coal Statistics 2011-2012, Coal Control Organisation, Ministry of Coal
Why this was not par for the course
All this would have been par for the course if India did not have enough coal reserves. Like is the case with oil. We don’t have enough known reserves of oil and hence we don’t produce enough oil to meet the demand. So we import oil.
But as numbers for the Geological Survey of India indicate as on April 1, 2012, India had 293.5billion tonnes of coal reserves. These reserves are referred to as geological reserves and are for valid for a depth between 0.9 metres and 1200 metres.
Not all of these reserves can be mined. Open cast mining of coal typically goes to a depth of around 250 metres below the ground level whereas underground mining goes to a depth of around 600-700 metres.
The amount of coal that can be extracted is referred to as extractable reserves. PC Parekh, a retired IAS officer in a presentation puts the extractable reserves at around 60billion tonnes. (You can access the presentation here). A few other experts this writer spoke to said that this number could be significantly higher.
But that’s beside the point. What this clearly tells us is that India has enough coal to mine unlike oil. Given this, India should not be importing the nearly 100million tonnes of coal that it did during the last financial year.
So then why is India not able to mine enough coal? The simple answer is that Coal India which is the biggest producer of coal in the country is not able to produce enough coal. One look at the following table clearly proves that.
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
Why coal blocks were given away for free
Between 2004-2005 and 2011-2012, the total coal production has increased by 17.5% or at a miniscule rate of 2.3% per year. The slow increase in the production of coal did not help given that India has been second the fastest growing economy in the world for a while now. Hence, the energy needs of the country have been growing as well. This meant greater demand for coal. A study published in 2011 shows that coal is used to meet 40% of India’s energy needs against the global average of 27%.
What did not help was the fact that between 2004-2005 and 2008-2009 there was a rally on in global commodity prices as China expanded at breakneck speech gobbling up commodities from all over the world. Hence, the price of coal shot through the roof. The international price of coal was a little over $20 per metric tonne in mid 2003. 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.
Given these reasons the government felt that there was a need to look beyond Coal India. In fact, the inability of Coal India to produce enough coal was the main reason why The Coal Mines (Nationalisation) Act 1973 was amended with effect from June 9,1973, to allow the government give away coal blocks for free.
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 total coal production in the country in 1993-94 stood at 246.04million tonnes having grown by 3.3% from 1992-93. The government understood that the production was not going to increase anytime soon because the newer projects were having time delays and cost overruns. 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”.
Even though the decision to give away coal blocks for free came into effect in 1993, nothing much happened till 2004. Between 2005 and 2009, the government of India gave away 149 coal blocks for free. This was also the time when the global rally in coal prices was on and the Indian demand for coal was also on its way up. 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.
But giving away the coal blocks for free did not solve any problem. As per the report prepared the Comptroller and Auditor General of India, 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 Coal India cannot increase production at a faster rate
In all this, the question that nobody seems to be asking is that why is Coal India not able to produce enough coal? It has probable reserves of around 18.9billion tonnes, but is still unable to expand production at a higher rate.
If I was a television journalist I would say that Coal India has been unable produce more simply because it is inefficient like most Indian public sector companies. But the truth is a lot more complicated than that. And it to a large extent explains why the government’s decision of giving away coal blocks for free hasn’t worked.
India’s coal reserves are largely concentrated in the middle of the country in the states of Jharkhand, West Bengal, Odisha, Madhya Pradesh, Chattisgarh, Maharashtra and Uttar Pradesh. There are some reserves in the North East as well, but they are at best miniscule. It does not help that the states that have the biggest coal reserves are also dealing with naxalite problem. Hence operating in these regions isn’t very easy.
A lot of the coal reserves are also in regions categorized as forest areas and getting clearances from the state governments isn’t always easy. What also has not helped is that the Ministry of Environment and Forests which gives the overall environment clearance isn’t known to be terribly efficient. As NC Jha told Times of India at the beginning of the year “Our 168 projects are pending environment and forest clearances at the Centre and State levels. Sixty-seven of these projects are greenfield and we are unable to make any investment in these. Remaining are ongoing expansion schemes, which too have been stalled.” Jha was the Chairman of Coal India at that point of time.
But these are small problems. The biggest problem facing Coal India is acquisition of land. The right to property is not a fundamental right in India. And over the years the government of India has acquired land forcibly from the citizens of this country at rock bottom prices. In the city of Ranchi, where this writer grew up, original landholders have still not been paid after their land was acquired to set up what was then one of the biggest public sector units in India.
Attempts to rehabilitate people whose land is acquired by the government, is rarely made. The homes built for this people are unlivable to say the least in a lot of cases. Hence, people resist to hand over their land, their only source of income.
Given this attitude of the government of India over the years the issue has become politicised. Hence, the state governments are not interested because by forcibly acquiring land they are likely to lose votes.
Due to these same reasons giving away coal blocks for free hasn’t worked and will not work. 193 out of the 195 coal blocks that government has given away for free are in the states of Jharkhand, West Bengal, Odisha, Madhya Pradesh, Chattisgarh and Maharashtra. All these states have a naxalite problem and that will effect the private and other government players as much as it has been impacting Coal India. The government’s environmental policy and the land acquisition policy continue to remain in a mess.
What also does not help is the fact that the expertise required to get a coal mine up and running is largely limited to Coal India. Mining coal isn’t exactly as easy as digging a tube-well.
In order to get a block up and running, companies need to prepare a mine plan, carry out the environmental impact study (EIS) of the area etc. The EIS essentially looks at what the current environment of the area is like, how mining coal will change that and what can be done to ensure that the current environment can be maintained. For Coal India this planning is done by Central Mine Planning and Design Institute (CMPDI), a 100% subsidiary. Such expertise is not easily available in the private sector.
To conclude
Coalgate is not a problem that emerged overnight. It is a problem created by the various Congress governments (given that the party has ruled the country for the most part since independence) over the years. This led to the Congress led UPA government giving away coal blocks for free to ensure that India produces more coal. But that is a problem that remains and will remain.
All data unless otherwise stated has been sourced from Provisonal Coal Statistics, 2011-2012, Coal Controller’s Organisation, Ministry of Coal.
(The article originally appeared on on September 11,2012.
(Vivek Kaul is a writer. He can be reached at [email protected])