Among options for axed blocks, Coal India and new mining entity

Written by Priyadarshi Siddhanta | priyadarshi siddhanta | Anil Sasi | New Delhi | Updated: Aug 28 2014, 13:45pm hrs
Coal IndiaIndustry experts feel that the options before the government really depend on the specific position the Supreme Court takes on Sep 1. Reuters
On September 1, when the Supreme Court holds a hearing to decide the fate of the coal blocks it ruled were alloted illegally since 1993, the government is likely to submit a set of options on the way forward. Among them will be the possibility of the cancelled blocks being either vested with state-owned miner Coal India Ltd, or being transferred to an umbrella mining entity specifically created to operate the 31 operational mines until the process of auctioning the blocks is institutionalised.

The governments plea is likely to hinge on the need for a case-by-case treatment of blocks, instead of an en masse cancellation, which factors in the progress achieved in mine development milestones.

An exception is likely to be sought for blocks awarded to central public sector utilities such as NTPC Ltd and Damodar Valley Corp, where the argument of windfall gains from the allocated blocks is likely to be countered with the fact that these generators sell electricity at regulated tariffs that factor in just a normative rate of return on equity.

The Supreme Court on Monday held allocation of 218 captive coal blocks by an erstwhile screening committee of the ministry since 1993 as illegal and arbitrary.

The Coal Ministry, according to officials involved in the exercise, is working on the proposal that envisages the cancelled blocks being either returned to Coal India or the proposed umbrella mining company. An official said in the event that blocks where development milestones have not been met are deallocated, these blocks can be given back to Coal India as the state-owned coal miner has been asking for more mines to meet the enhanced production target of 507 million tonnes in 2014-15.

The other view is that an umbrella mining body can be set up to operate the 31 functional mines belonging to private and state-run companies until the competitive bidding process is institutionalised. For private sector power generators who have bagged blocks and adhered to development milestones, the governments proposal is likely to hinge on a blanket ban on merchant sales of electricity (selling power at market rates) and aligning electricity rates to baseline tariffs set by the power regulators.

Industry experts, however, feel that the options before the government really depend on the specific position the Supreme Court takes on September 1.

If the court directs cancellation, then government may auction them with current owners given the first right of refusal, Kameswara Rao of PricewaterhouseCoopers said in reply to a query.

Since the (mining) law will have to be amended in any case as even allocation to state-owned companies is deemed illegal, the fresh legislation should permit private ownership, and thus, commercial mining. This will then permit all options including coal auctions, captive blocks, and SMDC (state mining development companies) can pursue joint ventures with the private sector, he added.

Of the 218 coal blocks with geological reserves of about 50 billion tonnes that have been allocated to public and private companies under the Coal Mines (Nationalisation) Act, 1973, 25 coal blocks had been de-allocated. Out of de-allocated coal blocks, two coal blocks were re-allocated to eligible companies subsequently. The net allocated blocks are 195 coal blocks with geological reserves of about 44.23 billion tonnes, of which 81 are with the power sector, 40 given for commercial mining, 63 for iron and steel, six for cement and five to other sectors.