On August 25, 2014, the Supreme Court (SC) pronounced 194 coal blocks allocated since 1993 ‘illegal’ as all these allocations suffered from what it described as ‘vice of arbitrariness’ and showed no concern what so ever for public/national interest.
The judgement vindicates findings of Comptroller and Auditor General (CAG). In its report (August, 2012), CAG had estimated loss due to such arbitrary allocations made during 2006-2011 to be Rs 186,000 crores or US$ 31 billion (based on price at which coal is sold by CIL). This would be many times more if computation is done using price of imported coal.
At another level, the judgement has created consternation among beneficiaries of illegal allotments. They are crying horse if these allocations are cancelled, this will affect investment, slow down growth and lead to increase in NPAs of banks.
The expressed concerns are prompted by their desperation to some how avert the inevitable when SC delivers its verdict on September 9, 2014 regarding cancellation of blocks declared illegal. The concerns are without any valid justification.
Far from causing any hurt, court’s pronouncement will only bolster investment sentiment by putting an end to looming uncertainty over the fate of blocks that have been in the thick of controversy ever since the CAG revelations.
This will clear the decks for government to initiate necessary steps for re-allocation of the blocks. It will quicken the pace of releasing millions of tons of coal capacity lying dormant for years, even decades in some cases. It is worth looking at some facts.
During 1993 to 2009, government had allocated 216 blocks. These include 105 to private companies, 99 to public sector undertakings (PSUs) and 12 for ultra mega power plants (UMPP). After adjusting for 24 blocks already de-allocated and 2 re-allocated, allocations at present are 194.
Of these, only 40 mines are in production. During 2013-14, they produced 53 million tons barely 10% of total production capability of all the allocated blocks. This is symptomatic of a policy environment and regulatory framework all these years that gave incentive to allot tees to just keep sitting on the blocks.
In 1993, Government of the day had amended the Coal (nationalization) Act to allow private sector mine coal for ‘captive’ use only. The intent was to accelerate the pace of mining and increase domestic production of coal so that increasing need for power generation and other infrastructure sectors such as steel and cement are met. But, it was not matched by practice.
Even as successive political dispensations especially UPA I & II resorted to indiscriminate allocations of blocks to private entities either solo or to joint ventures formed with PSUs, there was no pressure on them to develop these thereby defeating the very objective of opening up.
In retrospect, it turns out that the declared intention was malafide and stands vindicated by apex court’s verdict. Crony capitalism was at work full throttle even as the powers that be distributed coal blocks to their favorites like cinema tickets.
Something that thickens the plot is that all through, a proposal for auction of mines – mooted by then coal secretary, PC Parakh and endorsed by Dr Manmohan Singh then prime minister (he was also in charge of coal ministry) was gathering dust!
The decision of apex court has cleared the maze and will enable Modi-government to start on a clean slate. The latter is fully geared to jump start process of re-allocation in a transparent manner on the basis of a uniform policy and fair methodologies.
Far from slowdown – fear that is sought to be implanted – this will give a boost to the economy as mines are taken away from dubious players/coal thieves and given to companies with impeccable credentials to put the resource to efficient use.
Allot tees of 40 producing blocks have undertaken significant investment in developing mine as also in end use segment (steel, power etc). While, government has taken a neutral stance, it is up to the court to decide either in favor of cancellation or imposition of a penalty in case it allows them to retain.
Government’s timely follow-up actions will not only unleash huge investment giving a leg up to the economy but also help in recuperating the loss vide proceeds of auctioning cancelled blocks and penalty on companies that are spared.
The concern about increase in NPAs of banks is a myth. We need to look at things in the correct perspective. If, companies had used bank money to develop blocks, these would be producing coal for use in power, steel etc and hence no problem in amortizing loans.
But, companies which did not use money for stated purpose do not deserve any sympathy. They must be treated as wilful defaulters. Banks should sell their assets to recover their loans. It would be fallacious to treat such persons with kid gloves under an ‘imaginary’ fear that banks will be hit.
To sum up, decision of apex court has not just provided a good opportunity to get rid of the mess created by past omissions and commissions but also paved the way for the government to clearly lay down the ground rules for proper and efficient utilization of coal resources in the national interest.
However, it needs to move beyond and undertake comprehensive reforms in the coal sector. It should take steps to break monopoly of Coal India (CIL) by allowing private sector in commercial mining of coal on same lines as already permitted in oil and gas. All allocations should be made through competitive bidding in an ‘open’ and ‘transparent’ manner.
Despite having huge reserves around 250 billion tons and potential to meet entire requirements of coal indigenously, India imports around 100 million tons involving foreign exchange outgo of US$ 16.5 billion annually. This is reprehensible. Worse still, we pay for import 3-4 times the price of domestic coal.
This scenario must change. India will be able to increase domestic production only when government allows more players in to coal mining and production. It should kick start process of making required amendment in extant laws to make this happen.