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Business News/ Politics / Policy/  Govt approves ordinance for cancelled coal blocks
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Govt approves ordinance for cancelled coal blocks

Ordinance will enable the government to acquire the land of these mines along with plants for auction later

Union finance minister Arun Jaitley. The Supreme Court had last month quashed allocation of 214 out of 218 coal blocks allotted to various companies since 1993 terming the method as ‘fatally flawed’. Photo: Pradeep Gaur/MintPremium
Union finance minister Arun Jaitley. The Supreme Court had last month quashed allocation of 214 out of 218 coal blocks allotted to various companies since 1993 terming the method as ‘fatally flawed’. Photo: Pradeep Gaur/Mint

New Delhi: The National Democratic Alliance (NDA) government on Monday moved to resolve the crisis created by the Supreme Court’s cancellation of coal mining licences and retained the option of allowing private miners to compete with the state-owned Coal India Ltd—a significant and radical reform, whenever it takes place.

The cabinet cleared an ordinance to facilitate the allotment of coal mines to state-owned companies that need the fuel, and also to private entities in businesses such as power, iron and steel, and cement for so-called captive consumption.

The latter will have to bid for such mines through an e-auction.

Through the ordinance, the government also retained the right of allowing mines to be allotted to private companies for mining coal and selling to others, although finance minister Arun Jaitley said in a press briefing after the cabinet meeting that cleared the ordinance that this wouldn’t be done immediately.

Still, the enabling provision effectively paves the way for the denationalization of coal mines (although Jaitley was insistent that it couldn’t be called that). He added that the interests of Coal India, the state-owned miner that has a monopoly over commercial mining, would be protected.

Kameswara Rao, head of audit and consulting firm PricewaterhouseCoopers’ energy practice, termed the ordinance cautious because it doesn’t allow commercial mining right away.

It is, however, clear that the “government is moving in that direction", said Rahul Singh, assistant professor at National Law School of India University, Bangalore, who added that he wished it had waited “till the winter session of Parliament".

“This government seems to be utilizing the Supreme Court case to its advantage to move in a direction it wanted to," he said.

The ordinance, which will now have to be passed by President Pranab Mukherjee before it comes into force, is the government’s response to a ruling of the Supreme Court on 24 September that cancelled 214 coal mine allotments for captive use. These allotments were made between 1993 and 2010.

Apart from resolving the crisis created by the cancellations, the ordinance also paves the way for addressing the issue of coal shortage that has affected several power and other plants. It will also significantly reduce India’s coal import bill of around $20 billion a year.

And, it provides an incentive to Coal India to get its act together and increase stagnant coal production with the enabling provision serving as an or-else threat (the provision allows the government to allow private miners in the business).

Spokespersons for Coal India and its union couldn’t be reached for comment. A. K Dubey, chairman of Coal India, did not answer his phone and did not reply to a text message either.

In the next three to four months, 74 mines, where production has started, is close to starting, or where substantial work has been done, will be auctioned to the eligible companies, coal and power minister Piyush Goyal said at the briefing.

The e-auctions would happen by sectors, he added.

Jaitley said that enough mines would be auctioned to meet the needs of these companies.

Much will depend on how the plan pans out in practice, said Dipesh Dipu of Jenissi Management Consultants, but “it is good" that they are addressing “short-term supply constraints".

An auction could, as it did in the case of spectrum, result in inflated prices and, in theory, increase the prices of power, steel and cement to end-users, resulting in higher inflation, something India can ill afford, but Goyal was confident that the measures in the ordinance as well as the enabling provision would result in more coal being mined in the country, resulting in a moderation of prices.

A former mines ministry official wasn’t sure about that. The ordinance doesn’t have anything in it to “incentivise exploration", added this person, who asked not to be identified.

Indeed “concerns regarding price need to be addressed", Dipu said.

State-owned companies will not have to bid for the mines and will instead be allotted the mines depending on their needs as well as the location of their plants, Jaitley said.

He added that the entire proceeds of the auctions would go to the states where the mines are located; most mines are in eastern India, in Orissa, Jharkhand and West Bengal.

The ordinance also facilitates the enforced transfer of land where the mines are housed from the individuals and entities owning it to those that are allotted the mines through the e-auction.

The government only allots mines; the companies allotted the mines then go out and acquire the land above the coal deposits.

While the Supreme Court order cancelled the allotments, it remained silent on the land that had been acquired by the entities allotted the mines. Jaitley clarified that the government will set up a “competent authority" to decide on the value at which this land would be transferred.

In 1973, India nationalized the coal mining business. Perhaps realizing its folly, which created a black market for coal and led to the birth of the notorious coal mafia and also put the nation’s power supply at risk arising from Coal India’s inefficiencies, it amended the law twice, once in the 1970s itself and another time in the 1990s, making allotment of mines to captive consumers possible.

The process, as evident in a 2012 report by the Comptroller and Auditor General of India, resulted in irregularities and alleged crony capitalism in the allocation of coal mines, resulting eventually in the apex court’s order.

Goyal said only companies incorporated in India would be allowed to bid in the e-auctions.

Ajoy Kumar, a spokesperson for the Congress, said it was his party-led United Progressive Alliance—it was in its rule between 2004 and 2014 that the coal allotment scam broke—that first proposed coal mine auctions. He added that the rights of local people and the environment need to be protected.

Tarun Shukla and Shreeja Sen in New Delhi and Ruchira Singh in Mumbai contributed to this story.

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Published: 20 Oct 2014, 08:21 PM IST
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