Supreme Court verdict on coal block allotment: Should India strengthen the role of national miner?

Pratim Ranjan Bose

“The recent report by Comptroller and Auditor General has opened a can of worms on captive coal block allocation policy and ‘windfall gains’ to private sector companies. The auditor, however, kept dispensation of coal blocks to government companies — mostly owned by the State governments — out of the ambit of Coalgate,” I wrote in a post-edit in Business Line in September 2012, pointing out how the entire allocation to State sector went off-target.

I am happy that the Supreme Court took note of some of the issues and cancelled allotment of all 218 captive assets, disbursed either to the public or private sector, since 1994.  

Read the 163-page verdict - that gives a blow by blow account of the allotment process - and you will know how rules were flouted, changed indiscriminately at each and every step - so much so that in the end, during the Congress-led UPA rule (2004-2014), reserves were doled out, free of cost, without any set criteria.

The biggest scandal

It was arguably the biggest scandal that the Indian politics nurtured, and protected from public criticism, during the last two decades.

Take look at the history of the coalition politics and you will know that the entire cross section of Indian politics, has willy-nilly been a party to this shameful episode.

Every government that ruled in either the States or in Delhi–played a role in its making. If the Leftists in West Bengal were the first to lobby for allotment of blocks to private sector in 1994; the BJP-led government in Delhi between 1998 and 2004 (the current West Bengal Chief Minister Mamata Banerjee was a coal minister in NDA cabinet) didn’t take any step to correct the anomalies either.

A Communist party-led West Bengal government pioneered the controversial joint venture route for developing the coal assets allotted to the State sector. It helped crony capitalists pocket the benefits, meant for public good. All other states, including the rightist BJP-ruled Madhya Pradesh and Chhattisgarh adopted the model.  

If the Jhakhand Mukti Morcha (JMM) government in Ranchi thrived on coal block allocation; the largest political force Congress was a fountainhead of all illegalities (read corruption).

It was the P V Narsimha Rao-led Congress government (1991-1996) that paved way for captive block allotment in 1993. But, the Manmohan Singh government (2004-2014) took it to a new high.

It was during this period that every Tom, Dick and Harry of this country queued up for a coal block. And, those with the right connections ended up claiming a stake on the country’s most important energy source, Coal.

It’s a record of sorts that over 80 per cent of the captive blocks were distributed in merely five to six years between 2005 and 2010.

The apex Court now says, the entire exercise suffered from “the vice of arbitrariness”.

Anyone or everyone got a block by promising to set up a steel plant or electricity generation facility etc. Many of such allottees were not recommended either by the respective ministry (like steel or power) or the State governments. People even got assets without any recommendation at all.

If anyone, like P C Parakh, played a whistle blower; the Manmohan Singh government did its best to silence him.  

More decisions ahead

The Court has so far merely checked the legality of the allotments (a separate investigation is on to ascertain the financial impact and the alleged corruption in granting such assets) and, is yet to start hearing on the future of such blocks.

Most probably, there will be measures to regularise the ownership of 32 captive mines in operation and, some more assets in advanced stages of development, to safeguard any major impact on the economy.

Considering the total captive coal production of approximately 40 million tonnes a year (as against the nation’s annual coal consumption of over 650 mt); the impact, in any case, should not be significant.

A thumb-rule calculation suggests, even the closure of all such mines will impact only 8000 MW electricity generation capacities. That is a mere 3 per cent of the nation’s installed capacity.

However, it’s a major blow to the interest groups in industry and politics, who thrived on the illegal dispensation of such assets for nearly two decades. And, there are probabilities that they will put up a combined show to subvert the court initiative to bring the house in order.

More than the industry, it is the politics that should now suffer from an existential crisis. The order threatens their bargaining power with industry that is crucial to fund elections.

And, that raises questions about the future course of policy making regarding the all important coal sector in India.

Let CIL acquire the mines

There is little doubt that the apex Court verdict has opened a range of opportunities before the country to clean the entire energy space from the grip of crony capitalists.

Considering India’s low purchasing power and, high cost infrastructure the country cannot afford to pay a higher cost of electricity. And, to do that the grip of National Miner should be should be strengthened.

History taught us that the nation’s firm grip on energy sector is crucial for manufacturing growth.

India cannot keep private miners on as a tight lease as in one-party ruled China. So, there is little point in trying to emulate that model. It is better to introspect why a democratic South Korea has State monopoly on the electricity sector.

 If the Prime Minister Narendra Modi wants to make India a manufacturing hub; he must not let the country’s most important energy resource to slip into the hands of the ‘market’, at least not in this juncture of democracy, where the entire political system is running low on credibility.

The need of the hour is to work within the set paradigms of Coal Mines Nationalisation Act. Coal India (CIL) is flushed with cash. It can always acquire the captive mines and ensure that coal be supplied to the same end-use plants.

It should not trigger rise in electricity tariff or the competitiveness of the end-use plants, either. Because, captive miners are currently using mining operations as a profit centre, with fuel transferred to the end-use plant at CIL prices. 

On the brighter side, a rush in investments will improve CIL’s stock price, helping the government in making more money from the proposed stake-sell programme.

If necessary the Coal Mines Nationalisation Act may be slightly tweaked to allow CIL to enter 50:50 JVs with private sector.

The moot point India has to produce low-cost electricity to make its industry competitive.

Some Fears 

But the sceptics fear that the Indian politics may try to bounce back with a piece of legislation to take the steering in its hand. There are many examples of such retrospective policy making by the Indian Parliament in the past.

There may also be efforts to safeguard the sections of industry who are now caught on the wrong foot. Many already started demanding de-\nationalisation of the  coal sector.

The course of events in the next few months will prove, how India is shaping its future.

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(Disclaimer: Graphics are collected from web. Will be withdrawn in case of any objection)