SC remarks on coal allocation could end privilege of PSUs

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Jan 28 2013, 09:26am hrs
The Supreme Courts questioning last week of the Centres authority to allocate coal blocks during the hearing of a public interest litigation regarding the coalgate will have major implications for Indias coal industry. If the Centre chooses to take the courts view for granted, then central and state-level public sector companies except Coal India will lose the privilege of being allocated captive coal blocks on a nomination basis and will have to compete with private companies by taking part in auctions.

If the Centre accepts the courts view that the extant law doesnt allow it to allocate coal blocks, it would flow from that the 2010 amendment to the Mines and Minerals (Regulation and Development) Act, 1957, ( MMDR Act) empowering itself to conduct auctions of captive coal blocks through insertion of Section 11A and reserve coal blocks for allocation to PSUs on a nomination basis are not legally valid either. Even in the MMDR Bill that seeks to make comprehensive changes in the Act (the Bill is now before the parliamentary panel concerned), the Centre proposes to retain the 2010 amendment, while the overall tone of the Bill is towards reinforcing the states prerogative in regulation and development of minerals other than coal and atomic minerals. The Bill not only seeks to retain the states status as licensing and leasing authorities but also proposes to amplify it by doing away with the need for prior approval of the Centre for states to issue licences, except in case of coal and atomic minerals and beach sand, which are in a distinct category.

Whatever be the law and its interpretation, the current practice is that coal blocks are allocated by the Centre while mining leases are granted by the states concerned. The SC observed that the existing policy amounted to putting the cart before the horse as states have no choice but to grant mining leases to whoever is allocated the block by the Centre. It felt that the Centre has a lot of "legal explanation" to do as the statutory Act empowers only the states to undertake the task of allocation (licensing).

Under the Seventh Schedule of the Constitution, management of mineral resources vests with both the Centre and state governments but its says that regulation and development of minerals would be the states job, except to the extent that Parliament, by law, makes a specific provision. The question of development and regulation is distinct from that of ownership. Ownership of minerals (except offshore minerals) is also with the states and in all cases, the licensing and leasing power is with the states only.

The question is whether the Coal Mines Nationalisation Act or the MMDR Act has been changed to give the Centre power to allocate coal blocks. The SC doesnt think they have.

However, there is no assurance that states will be able to allocate coal blocks in a better way than the Centre given the mining controversy in states like Karnataka, feel experts. What is required is a transparent process, they reckon. Whether it (allocation) is to be done at state or central level, the zone of discretion should be minimised, said RV Shahi, a former Union power secretary. If the allocation power is given to states for coal blocks, each coal-bearing state will have to set up its own screening committee for selection of allocatees, in a reversal of the current practice where this responsibility lies within the Centres purview and is performed through a national-level committee. This is at a time the Centre is trying to introduce a number of players in the field of coal mining through a somewhat liberal captive coal policy (even as privatisation of commercial coal mining remains a pipe dream). So if the states start allocating coal blocks, the Centres ability to manoeuvre the policy space would be constrained.

As for non-coal minerals (such as iron on ore, bauxite, limestone, base metals like lead, noble metals like gold and the rare earth elements), the Centres thinking as reflected in the MMDR Bill with the parliamentary standing committee is that auction is the right way for allocation of fully prospected deposits, but extending auctions to other cases indiscriminately might disincentivise exploration. It is reckoned that once bidding is introduced in the case of surficial deposits of these minerals, the Centres concurrence would also become redundant and states powers will be buttressed, though with lesser scope for discretion. The MMDR Bill is a move towards decentralisation of power in cases of minerals, said Dilip Kumar Jena, senior consultant and knowledge manager, mining, PwC.

It remains to be seen if the Centre will try to keep the currently used window to allocate (and hence auction) coal blocks by explaining the legal position to the satisfaction of the apex court or by amending the law for this purpose. A possible question is that even if the Centre decides to change the law to empower itself, whether that can/should have retrospective application.