1. Land Act to raise costs, hit output: CIL

Land Act to raise costs, hit output: CIL

Coal India (CIL) has petitioned its parent ministry saying the new land acquisition Act’s compensation...

By: | Published: November 21, 2014 4:43 AM

Coal India (CIL) has petitioned its parent ministry saying the new land acquisition Act’s compensation clause has inflated its cost of land, potentially jeopardising a plan to double output to 1 billion tonnes in five years, reports Sumit Jha in New Delhi. “Viability of our (mining) projects will be affected adversely on account of higher cost of land caused by the new R&R (resettlement and rehabilitation) obligations (imposed by the Act), a senior CIL official told FE on condition of anonymity.

“A number of projects, though technically feasible, are not getting financially viable and are falling short of threshold requirement of 12% IRR (internal rate of return). There is a need to relax the proposed compensation clause under the new Act,” the official added.

Given the stagnation in domestic coal output that widened the demand-supply gap of the fuel, power and steel companies have stepped up imports in recent years, despite the imports being costlier. The surge in coal imports also created an additional threat to India’s current account balance. Imports this year are likely to rise nearly 100% from three years ago to 180 million tonnes.

“(Issues of) land acquisition are definitely a major roadblock to Coal India. But we have recently made headway in West Bengal where the government has responded favourably on the land acquisition process for projects that have been stuck for several years. The central government is already working to make the law more conducive to acquisition,” coal secretary Anil Swarup told FE. Finance minister Arun Jaitley had said that land acquisition law would see some industry-friendly changes whether or not some sections resisted them.

According to an estimate, investments to the tune of Rs 5 lakh crore have been hit by paucity/unavailability of coal. CIL expects to mine 507 million tonnes in 2015, up 9.6% over last year. In parallel, the government is also making efforts to augment private coal production (from captive mines) to a creditable 400 million tonnes a year by 2019 from less than 50 million tonnes now. Swarup on Thursday told Reuters that India will allow locally registered foreign firms to mine and sell coal when commercial mining is permitted as part of the opening up of the industry that was nationalised four decades ago. But a timeline for this is yet to be announced.

While it was easier for CIL to acquire land under the Coal Bearing Area Act, 1952, which deals with land likely to contain coal deposits, the task becomes onerous when land is to be acquired under the new land acquisition Act for purposes not directly related to coal mining like setting up of offices or other permanent infrastructure, sources explained. The new Act stipulates compensation to the people affected by land acquisition for projects of public purpose should be four times the market value of the land in rural areas and twice the market rates in urban localities.

To achieve the 1-billion-tonne output target by 2019, CIL envisages taking up 126 new projects, with an estimated maximum output of 375 million tonnes per annum, in addition to 149 ongoing ones. Only 49 of these projects have already been approved by the firm after techno-economic studies. The rest of the projects are being considered by the firm and its respective subsidiaries.

“It (the target) would indeed be challenging in view of the progress being made. The government will have to ensure that both ongoing and new projects get requisite land in a time-bound manner since the gestation period involved in ramping up production after the possession of land is about three to five years,” the CIL official added.

CIL expects that the timely execution of three crucial railway lines in eastern and central India will help ramp bump production by 150 million tonnes. The other immediate steps being planned are equipment procurement for the new projects in a manner that leaves no scope for re-tendering, a common occurrence that has led to delays in several projects earlier. The Maharatna PSU also needs to put a special dispensation in place to obtain environmental and forest clearances. Recently, many of its projects got these clearances after the Modi government fast-tracked them.

Tags: Coal India
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