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JUN 13 2013

Real Coalgate: Too Much Coal in Too Few Hands

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 13th JUN 2013

So far, debates over Coalgate have been an exercise in selective attention. In the early days, most discussion pivoted around the UPAs decision to allot blocks through the screening committee, and not auctions. The spotlight then settled on politicians whose family members got coal blocks, before moving to the UPAs inspired attempts to vet what the CBI tells the Supreme Court. It is now refocusing on Naveen Jindal and Dasari Narayana Rao. The focus was, and is, mainly on morality. In the process, the discourse has neglected two important questions. One, it has not understood the real fallouts of Coalgate. Two, the related question on how to fix this mess has received hardly any attention. According to the UPA, the captive block policy was adopted because India was preparing for massive jumps in thermal power generation capacity. And, since Coal India (CIL) was incapable of expanding production, we needed to bring the private sector into coal production. In practice, most captive blocks went to sponge iron plants, not power plants. Among the lucky power plants, very few of the serious ones got any. Take Chhattisgarh.

During 2003-11, 32 captive blocks were allocated in the state. Of these, just 14 went to thermal plants, seven of which were power PSUs. As for the 11 private companies that got captive blocks, just five are on track with their projects. Or take CIL. According to the CAG, the PSU asked for 93 billion tonnes of coal reserves to produce 731 million tonnes a year till 2036. However, the government gave CIL only as many blocks as it was planning to develop by 2012, and diverted the rest about 44 billion tonnes to the captive route. As a result, when 2012 came around, CIL had no new explored mines where it could start coal production. The UPA also gave out many more captive blocks than it needed to: 3-4 times the requirement expected in 2016-17, according to the Coal Controllers data.

The combined outcome of assetstripping CIL and allocating coal blocks to a handful of companies has been predictable. Take Chhattisgarh, again. At the peak of the electricity boom, over 60 companies wanted to set up thermal power plants in the state. When they did not get a coal block, they tried for a coal linkage. However, with CIL no longer able to meet everyones demand, coal linkages, originally signed as 100% supply agreements, became 65% supply agreements. The outcome? Most power plants are unviable. After importing 35% coal, they cannot compete with power plants with captive blocks. Abandoned projects and impending consolidation look likely. Such is the fallout of Coalgate.

By concentrating the ownership of coal reserves in a handful of companies, it has distorted competitive advantage in the power generation market. It has compromised Indias energy security and pushed the country towards an oligarchic future. It has also accelerated the loss of Indias central forests and imperilled the rivers that originate there. CIL, with a range of coal blocks to mine in, could defer mining in forests. But a power plant, allotted one coal block in a forest, has no such discretion. When we talk about correctives, the first step is to reverse this concentration of ownership. Blocks should be taken back from companies that cannot convincingly explain why they have not started mining, from those who misrepresented facts to get blocks, and from those whose end-use projects are nowhere in sight yet.

Next, address the coal shortage. We should amend the Coal Mines (Nationalisation) Act, allowing international companies to enter India. They should be allotted blocks (transparently, please) and made to sell the coal they extract in the open market competing with CIL. This also creates a level playing field for all power plants. Failing that, give these blocks to CIL and instruct it to subcontract coal extraction to private companies. These subcontracting agreements exist. Corruption is endemic, so most contracts are engineered to favour private parties. But this is a fixable problem. However, most discussions inside the government have pivoted around price-pooling, auctions, splitting up CIL and so on. Thats perhaps because the real solutions punishing unworthy private miners and letting in foreign capital will upset too many cosy arrangements.


Comptroller and Auditor General Coal Coal India Limited Coal Mines Coalgate Naveen Jindal Central Bureau of Investigation Public sector units CIL coal linkages India

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