PM’s statement dated October 19, 2013 regarding allocation ofTalabira-II coal block in Odisha to Hindalco for its 650 Mw captive power plant (CPP) in its integrated aluminium project in Sambalpur, Odisha and for a 100 Mw CPP for expansion of its Hirakud aluminium plant in Odisha throws up some serious questions on approach of GOI towards central PSUs.
In August 2005, Ministry of Coal had informed PM about the decision of the Screening Committee to allocate Talabira-II block to Neyveli Lignite Corporation (NLC). The allocation was made to NLC in the 90s under a ‘special dispensation’ for public sector undertakings (PSUs).
Committee felt that Talabira-II & III blocks [Talabira-III had been separately allocated to Mahanadi Coalfields Ltd (MCL)] needed to be developed together to extract an additional 30 million tons of coal that would have gone waste otherwise at the boundary of each block.
Accordingly, it recommended that two blocks can be developed together as a large mine under a joint venture (JV) arrangement between NLC and MCL. These two PSUs had on their plate a JV power plant based on coal available from this large mine.
While, arriving at above decisions, Committee had already duly considered request of Hindalco and ‘declined’ citing latter’s inability to use coal provided long time back through adequate coal linkages from MCL.
However, following interventions from PMO (based on representations received from Mr Kumar Mangalam Birla dt May 7 & June 17, 2005), on September 16, 2005, Ministry of Coal dramatically changed its recommendations.
Instead of a two-way joint venture (JV) between NLC and MCL contemplated earlier, it recommended a three-way JV between MCL, NLC and Hindalco with equity share 70%, 15% and 15% respectively. 70% share of MCL would equal Talabira-III extractable reserves as a proportion of total of two blocks.
Remaining 30% of production was to be shared equally between NLC and Hindalco. @ 15% while latter would meet 81.5% of its requirement, former would cover only 29% of its needs.
That was a clear-cut discrimination against NLC.
This also contravened Guidelines approved by PM on June 9, 2005 which required distribution of coal to be in proportion to assessed requirement of each allocate. That would have required apportionment to NLC and Hindalco in ratio of 22.5:7.5.
Instead, by approving 15:15, PMO deviated from extant guidelines. This was justified on ground that NLC and MCL are sister PSUs and their requirements of power project would be fully met from 70% share of MCL in reserves of Talabira-II & III. This is untenable.
Under two-way JV, earlier approved by Committee and considering that requirement of NLC including power project by itself was huge, it was only logical to expect that entire reserves would have been committed to NLC/MCL.
(It needs to be noted that Hindalco was not in reckoning at that stage. Hence, there was no question of keeping some reserves un-allotted!)
In this backdrop, subsequent decision (Sept, 2005) to give 15% of reserves to Hindalco would have been only at cost of NLC and MCL, total quantum of reserves remaining un-changed!
In its recommendation (August, 2005), Odisha CM had justified allocation to Hindalco harping on benefits especially more employment generation by aluminium project vs ‘standalone’ power project (debatable!). This weighed heavily on PMO in arriving at final decision.
The Mines and Mineral (Development and Regulation) Act (MMDRA) was ‘overplayed’ to lend credence to change in stance of Coal Ministry. Under MMDRA, mining lease for coal is granted by state government with previous approval of central Government.
True, under federal framework of sharing mining rights as provided under Act, central and state governments need to concur before an allocate can be granted a lease. But, that cannot be stretched to a point of GOI ‘surrendering’ to the state.
If, recommendation of state were to be sole consideration (as would appear in instant case) then, why should there be a need for screening and evaluation by central Government at all?
The role and approval of central Government assumes added significance all the more when interests of central PSUs are involved. Prima facie, this was recognized by putting in place a ‘special dispensation’ for allocating mines to them.
Yet, interest of NLC had been compromised. It was denied its requirement to extent of 71%. For running its power plant, it will have to make up buying coal at much higher price. This would lead to higher cost of power and its cascading effect on consumers.
At another extreme, Hindalco by getting 81.5% of its need from captive mine would lower cost of fuel and in turn, cost of power generation from its CPP. That would give it a clear advantage even as it enjoys freedom of pricing for its final product viz., aluminium.
There could not have been a better demonstration of a private company gaining at the expense of a central PSU and that too despite proclaimed commitment of Government to confer special privileges on the latter.
It could be argued that having got the mining lease, NLC did not take required steps to exploit reserves and produce coal. Therefore, it was necessary to bring a private partner to expedite the process. This is perverted logic.
Being a PSU, NLC is directly under control of Government and nothing comes in its way to direct management to move forward at required speed. The irony is that even after Hindalco was in, things did not move forward!
The crux of the problem is Government’s ‘lackadaisical’ attitude towards PSUs. Leave aside public pronouncements, happenings on ground clearly show total lack of concern for their efficient functioning and growth.
But for this, Coal India Ltd (CIL) would have fruitfully used its monumental ‘idle’ cash for increasing coal production. We could have avoided drain of billions of dollars on import. Government must get rid of this mindset to deliver results in short-term.
Meanwhile, it should get cracking on reforms to enable full-fledged entry of private sector and all allocations through competitive bidding in an ‘open’ and ‘transparent’ manner.